First-time unemployment benefit applications increase by 38,000

Economists argue that the labor market is healthier when applications fall below 375,000, suggested that the pace of hiring pace is fast enough to bring down the unemployment rate, which now sits at 7.8 percent. 

Even through the "fiscal cliff" debate, employers have continued to hire despite the uncertainty. 

The private sector added 192,000 jobs in January, more than estimated, and a sign of the labor market's continuing recovery despite fiscal obstacles, according to the ADP National Employment Report released on Wednesday.  

Underlying job growth is running at about 175,000 a month, which is enough to allow for a steadily declining jobless rate, said Mark Zandi, chief economist of Moody’s Analytics on Wednesday. 

Zandi expects the jobless rate to gradually drop this year to 7.3 percent before, finally, falling below 7 percent next year. 

The government is scheduled to release its job numbers for January on Friday with the expectation that there were at least 155,000 jobs added. 

A separate report on Thursday showed that consumers kept up their spending in December although at a slower pace than November. 

Spending rose 0.2 percent last month and was bolstered by a 2.6 percent increase in salaries, the largest jump in eight years. 

In another report, the nation’s employers announced plans to cut payrolls by 40,430 jobs in January, up 24 percent from 32,556 in December, according to the latest report on planned job cuts released Thursday by global outplacement consultancy Challenger, Gray & Christmas.

Still, cuts were 24 percent lower than the 53,486 layoffs announced by employers the same month a year ago. 

On Wednesday, the government said the economy contracted last month because of huge cuts in defense spending in the final three months of the year.

But housing, business investment and consumer spending were all strong, giving economists reason to be optimistic for the economy's prospects this year despite a looming batch of spending cuts scheduled to start in March.