But the upbeat economic outlook was dampened by other data on Thursday showing a drop in new residential construction in December after hefty gains the prior month.
Initial claims for state unemployment benefits plunged 50,000 to a seasonally adjusted 352,000, the lowest level since April 2008, the Labor Department said.
That was the largest drop since September 2005 and took claims within spitting distance of the 350,000 mark that economists say would signal strong job growth.
The four-week moving average of claims, considered to be a better measure of labor market trends, dropped 3,500 to 379,000 last week. Analysts had expected initial claims to fall only to 385,000.
"We have to see if there are some seasonality issues involved here, but on the surface this number looks to be very positive and is pretty much consistent with other data we've seen recently that suggest improvement in underlying fundamentals in the US," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.
US stock futures added to gains after the data, while Treasury debt prices widened losses.
Last week's claims data covered the survey period for January nonfarm payrolls and claims dropped by 14,000 between the December and January survey periods.
Payrolls increased 200,000 in December, with the unemployment rate dropping to a near three-year low of 8.5 percent.
The claims data builds on a rash of stronger-than-expected economic signals and could further temper expectations among some economists that the Federal Reserve could launch a fresh round of bond buying to spur the recovery.
The Fed meets next week and no policy action is expected, outside from the possibility the central bank may signal it will keep overnight rates pressed to zero for longer than had previously been expected.
But with continued signs of stress in the housing market, the US central bank will stay very much in the picture.
Housing starts fell 4.1 percent to a seasonally adjusted annual rate of 657,000 units in December, the Commerce Department said in a separate report. Economists had expected housing starts to fall to a 680,000-unit rate.
Permits for future home construction slipped 0.1 percent to an annual rate of 679,000 units last month.
"Housing continues to bounce along at the bottom, suggesting that housing is not going to recover for several years to come. If we are relying on housing to drive this recovery it seems we will continue on this tepid path for a very long time," said Lindsey Piegza, an economist at FTN Financial in New York.
Inflation Still Muted
In another report, the Labor Department said its Consumer Price Index was unchanged in December for a second straight month.
Core CPI - excluding food and energy - inched up 0.1 percent after rising up 0.2 percent in November. That was in line with economists' expectations.
Last month, overall inflation was held back by gasoline prices, which fell 2.0 percent - declining for a third straight month. Food prices rose a modest 0.2 percent after nudging up 0.1 percent in November.
Overall consumer prices rose 3.0 percent year-on-year after increasing 3.4 percent in November. That was in line with economists' expectations.
Core consumer prices were last month dampened by new motor vehicle costs, which fell 0.2 percent - the third straight month of declines. Prices for used cars and trucks dropped 0.9 percent, falling a fourth month in a row.
Apparel prices slipped 0.1 percent, indicating discounting by retailers to attract holiday shoppers. Apparel prices rose 0.6 percent in November.
But housing costs held up, with owners' equivalent rent rising 0.2 percent last month, reflecting the rising demand for rental apartments as the weak housing market pushes Americans away from home ownership. This category rose 0.1 percent in November.
In the 12 months to December, core CPI increased 2.2 percent after rising by the same margin in November. This measure has rebounded from a record low of 0.6 percent in October.
The Fed would like to see core inflation at 2 percent or a little under, although the price measure its follows most closely tends to run below the core CPI.