Jan. 11 (Bloomberg) -- First-time claims for state unemployment benefits in the U.S. fell more than expected last week, reflecting a firm labor market and distortions to government figures caused by the holidays.

Initial jobless claims fell 26,000 to 299,000 in the week ended Jan. 6, the lowest in more than five months, the Labor Department said today in Washington. The four-week moving average, a less volatile measure, fell to 314,750, the lowest since Nov. 11.

A greater-than-expected increase in December payrolls reported last week suggests that Americans will keep spending, helping to cushion the blow from the housing market. Today's claims figures were depressed by seasonal adjustments to the data to account for the Christmas and New Year's holidays, a Labor Department spokesman said.

``The job market is still healthy,'' said Doug Porter, deputy chief economist at BMO Capital Markets in Toronto. ``There might be a little bit of underlying improvement that echoes last week's solid payroll report.'' He added that ``There could be a seasonal problem at the start of the year.''

Economists expected claims to fall to 320,000 from an originally reported 329,000 the prior week, according to the median of 36 forecasts in Bloomberg News survey. Forecasts ranged from 300,000 to 350,000.

The number of people continuing to collect state unemployment benefits fell to 2.428 million in the week that ended Dec. 30 from 2.431 the prior week.

Unemployment Rate

The unemployment rate among people eligible for benefits, which tends to track the U.S. jobless rate, held at 1.9 percent. These data are reported with a one-week lag.

Twenty-eight states and territories reported an increase in new claims, while 25 reported a decrease, the Labor Department said.

``Claims are typically quite volatile in the weeks after Christmas,'' said Abiel Reinhart, an economist at JPMorgan Chase Corp. in New York. ``Nevertheless, amidst the volatility, the picture of the labor market that we are getting from claims is still quite good, with relatively little change over the whole second half of 2006.''

A report today from job-placement firm Challenger, Gray & Christmas Inc. said the time it takes to look for a new job fell by 12 percent in the fourth quarter to a median of 3.7 months from 4.2 months the prior quarter, when it was the longest since the first quarter of 2003.

Job Creation

``The decline in job-search times corresponds to increased job creation reported by the government in the fourth quarter,'' John Challenger, chief executive of the Chicago-based placement firm, said in a statement.

Consumer spending probably rose at a 4 percent annual pace in the final quarter of last year, compared with a 2.8 percent rate in the prior three months, according to a Bloomberg News survey of economists from Jan. 2 to Jan. 8.

Workers' average hourly earnings were up 4.2 percent in December from a year earlier, a gain not exceeded since November 2000, the government reported on Jan. 5.

The unemployment rate remained near a six-year low in December, while employers added 167,000 new jobs, compared with 154,000 the prior month, a government report showed last week. Monthly job growth averaged 153,000 in 2006, compared with an average 165,000 the previous year.

Among companies planning to add more workers is Chipotle Mexican Grill Inc., the fast-food chain McDonald's Corp. sold to the public last year.

New Restaurants

Chipotle will add 95 to 105 restaurants after it improved training for employees who will run the new units, Chief Operating Officer Monty Moran said at a conference in New York on Jan. 9. The company had 547 units in 25 states as of Sept. 30.

Payroll growth, measured monthly, generally rises as initial jobless claims, which reflect firings and are measured weekly, decline.

An expanding labor market has helped to shield the economy from the impact of the housing slump. The economy grew at the slowest pace in three quarters in the period from July through September as home construction registered its sharpest slump in 15 years. Growth fell to a 2 percent annual pace from 2.6 percent in the second quarter.

`Vigilant' on Inflation

Federal Reserve Bank of Chicago President Michael Moskow yesterday said he expects economic growth to gain strength in the coming year, and the low unemployment rate means policy makers must remain ``vigilant'' on inflation.

The Chicago Fed predicts home construction is likely to remain a drag on growth, Moskow said. ``But I do not expect a large spillover of the weakness to other sectors of the economy,'' he said. ``Consumer spending has held up quite well.''

Some economists predict job growth will slow as residential construction weakens and falling home prices make consumers feel less wealthy. Builders shed 3,000 jobs in December while manufacturers trimmed 12,000, the government said last week.

Collins & Aikman Corp., an auto-parts maker in bankruptcy that is shedding assets, plans to close a Missouri plant that makes instrument panels, eliminating 250 jobs, spokesman David Youngman said Jan. 8.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: January 11, 2007 11:22 EST