The job market likely will remain weak well into next year, according to estimates from government and private economists.
The department also said U.S. workers were more productive in the first quarter than previously estimated, as rapid layoffs forced companies to make do with fewer employees.
The tally of first-time claims for jobless benefits declined to a seasonally adjusted 621,000 from the previous week's revised figure of 625,000, nearly matching analysts' expectations.
The total jobless benefit rolls fell by 15,000 to 6.7 million, the first drop since early January. Continuing claims had set record highs every week since the week ending Jan. 24. The continuing claims data lag initial claims by one week.
Separately, sales fell in May at many retail stores as shoppers spent cautiously, focusing on bargains and food.
Discounter Target Corp., warehouse club operator Costco Wholesale Corp. and Macy's Inc. department store reported drops in sales. TJX Cos., which owns the TJ Maxx and Marshalls chains, said sales rose a greater-than-expected 5 percent.
Wal-Mart Stores Inc., the world's largest retailer, did not report monthly sales but did say it expects to hire about 22,000 people for new positions this year.
Wall Street's reaction was mixed, with the markets fluctuating between moderate gains and losses. The Dow Jones industrial average added about 27 points in afternoon trading, and broader indices also edged up.
The number of initial jobless claims remains stubbornly high, above the 605,000 level reached five weeks ago. That was the lowest level in 14 weeks.
The four-week average of claims, which smooths out fluctuations, rose by 4,000 to 631,250.
And the number of people claiming jobless benefits through an emergency program rose by about 160,000 to 2.35 million. That figure, which lags initial claims by two weeks, brings the number of people claiming benefits to more than 9 million.
Congress approved the emergency extension last June. It adds up to 33 extra weeks of benefits on top of the regular 26 weeks provided by most states.
Productivity, the amount of output per hour worked, rose at a seasonally adjusted annual rate of 1.6 percent in the January-March period, the department said, double the government's estimate last month.
The increase came despite a steep drop in output, because companies laid off employees and cut hours worked at an even faster pace.
Higher productivity can raise living standards because workers that produce more can earn higher wages without forcing companies to raise prices.
Labor costs rose 3 percent, down from the government's previous measure of 3.3 percent. A rapid increase in labor costs could fuel inflation, but most economists aren't worried about rising prices, as the recession is keeping a lid on wage demands.
The reports come a day before the department is scheduled to release its unemployment report for May. Economists expect that report will show employers cut a net total of 520,000 jobs last month.
That's on top of 5.7 million jobs that have been lost since the recession began in December 2007.
The unemployment rate, meanwhile, will rise to 9.2 percent from 8.9 percent in April, analysts forecast.
Troubles in the automotive sector could cause unexpected fluctuations in the claims data. General Motors Corp. filed for bankruptcy protection Monday, joining Chrysler LLC, which filed April 30.
GM said earlier this week it will close nine factories and idle three others indefinitely as part of its restructuring. The closings, which will take place through the end of 2010, will cost 18,000 to 20,000 workers their jobs.
The company already planned to temporarily close 13 plants on a rolling basis this summer. Workers affected by the temporary shutdowns are eligible for unemployment benefits.
Chrysler, meanwhile, has temporarily idled all its U.S. factories after filing for bankruptcy protection, resulting in 27,000 layoffs. That decision caused claims to jump in the first week of May.
The shutdowns also could affect auto suppliers, which employ 3 million workers.
Initial claims are still below the peak for the current recession of 674,000 in late March. Many economists see the decline as a sign that layoffs outside the auto sector have peaked. But the unemployment insurance data remain significantly higher than a year ago, when initial claims were 370,000 and the total benefit rolls stood at 3 million.
Among the states, Illinois had the largest increase in claims, with 3,881, which it attributed to layoffs in the manufacturing and service industries. The next largest increases were in Iowa, South Carolina, Texas and Wisconsin. The state data lag initial claims by a week.
North Carolina had the largest drop in claims of 3,952, which it attributed to fewer layoffs in the construction, furniture and transportation industries. The next largest decreases were in Michigan, Ohio, Tennessee and Connecticut.
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