Initial claims for state unemployment benefits in the US dropped by a sharper than expected 38,000 on Thursday, but an Obama administration official warned that data due out on Friday would show the US economy continuing to shed hundreds of thousands of jobs.

Christina Romer, the chair of President Barack Obama’s council of economic advisers, seized on the decline in weekly jobless claims and other indicators to argue that the administration’s $787bn stimulus package was working – even as she acknowledged that there would be a big rise in overall unemployment on Friday with the release of non-farm payrolls data.

“Job growth will almost certainly lag the turnround in real GDP growth,” she said. “The consensus forecast is for the employment statistics we get tomorrow to show that the US economy continued to lose hundreds of thousands of jobs in July”, she said, calling such an outcome both “unacceptable” and “all but inevitable”.

Employment benefit claims fell to 550,000 for the week ending August 1, Thursday’s data showed, below analysts’ expectations of 580,000. The less volatile four-week average of first-time unemployment claims also declined last week, dropping by 4,750 to 552,250. The insured unemployment rate held steady at 4.7 per cent.

“The contraction in the labour market, albeit still troublesome, continues to moderate,” said Joseph Brusuelas, director of Moody’s “This is another indication that the severest portion of the downturn is in the past, but initial claims need to be around 350,000 to indicate the labour market has stabilised.”

Economists surveyed by Reuters expect 320,000 jobs to be lost in July, and the unemployment rate to rise from its 26-year high of 9.5 per cent to 9.6 per cent. Since the recession began in December 2007, 7.2m jobs have been lost, though there has been a downward trend in the number lost each month.

The dismal economy has taken its toll on Mr Obama’s popularity. A CNN poll showed his approval rating slipping 7 percentage points to 56 per cent over the past three months. Some 79 per cent of respondents said economic conditions were poor in the US, with 51 per cent who said Mr Obama’s economic policies had not been effective against 44 per cent who said that they had.

Federal groups have consistently underestimated the severity of the recession’s impact on unemployment. In January the federal open market committee estimated that the unemployment rate would be between 8.5 and 8.8 per cent in 2009, which it exceeded three months later. By June the FOMC had increased its projection to 9.8 to 10.1 per cent.

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