WASHINGTON The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to continued labor market strength.

Initial claims for state unemployment benefits dropped 26,000 to a seasonally adjusted 239,000 for the week ended June 25, the Labor Department said on Thursday. Economists polled by Reuters had forecast 265,000 claims for the latest week.

In the prior three weeks, claims had hovered at elevated levels last seen in October 2021. The readings had suggested a pick up in layoffs, consistent with a rise in announced job cuts outside the technology sector as the economy starts to feel the impact of the Federal Reserve's hefty interest rate increases.

Recent policy changes in Minnesota making tens of thousands hourly paid school workers eligible for state unemployment benefits during the summer break also accounted for some of the increase in claims. Fraud in some states could also be an issue.

Claims, relative to the size of the labor market, are well below the 280,000 level that some economists say would signal a significant slowdown in job growth. Employment growth has averaged 314,000 jobs per month this year.

Job growth is being driven by the services sector, including the leisure and hospitality category, which is still catching up after businesses struggled to find workers over the last two years. Industries like healthcare and education also experienced accelerated retirements during the COVID-19 pandemic.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 19,000 to 1.742 million during the week ending June 17, the claims report showed.

The so-called continuing claims are low by historical norms, indicating that some laid off workers were experiencing shorter spells of unemployment.

A survey from the Conference Board this week showed consumers' perceptions of the labor market upbeat in June, with more viewing jobs as "plentiful" relative to May, and a slight decline in the share who believed that jobs were "hard to get."

Continuing claims covered the period during which the government surveyed households for June's unemployment rate. Continuing claims fell between the May and June survey periods. The unemployment rate was at 3.7% in May.

Labor market strength helped to prop up in the economy in the first quarter, through an acceleration in consumer spending, which offset the drag from a sharp slowdown in the pace of inventory investment by businesses.

Gross domestic product increased at a 2.0% annualized rate last quarter, the Commerce Department said in its third estimate of first-quarter GDP on Thursday. That was revised up from the 1.3% pace reported last month.

The economy grew at a 2.6% pace in the fourth quarter. Economists had expected first-quarter GDP growth would be raised slightly to a 1.4% pace.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)