The number of Americans filing new claims for unemployment has dipped below 1 million for the first time since March.
About 963,000 people sought the benefits last week, down from nearly 1.2 million the week before, the Labor Department said.
The figures have been subsiding since peaking at 6.9 million in late March.
But they remain extremely high, driving debate in Washington over the need for further stimulus.
More than 28 million people – nearly one in five American workers – were still collecting benefits in the week ended 25 July, the Labor Department said.
Prior to the pandemic, the highest number of new jobless claims recorded in a week was 695,000, set in 1982.
"Another larger-than-expected decline in jobless claims suggests that the jobs recovery is regaining some momentum but with a staggering 28 million workers still claiming some form of jobless benefits, much labour market progress remains to be done," said Lydia Boussour, senior US economist at Oxford Economics.
Hiring in the US slowed last month as the country struggled to contain the coronavirus, with employers adding 1.8 million jobs, down from 4.8 million in June.
The unemployment rate was 10.2%, down from April's 14.7% but still higher the 10% peak during the 2007-2009 financial crisis.
Economists say the path of the economic recovery remains uncertain, and likely to worsen after an emergency $600 increase to unemployment benefits, intended to top off payments during the pandemic, expired last month.
Talks in Washington about additional stimulus collapsed last week without a deal.