The number of workers filing for jobless benefits fell only slightly last week, suggesting the unemployment rate will remain elevated even as recovery in the labor market builds steam.

Initial claims for state unemployment aid slipped 4,000 to 444,000 in the week to May 8, the Labor Department said on Thursday, maintaining this year's modest downward trend even as other job market indicators have shown major improvements.

Economists said the puzzling stickiness in claims, which they had expected to dip further to 440,000, underscored the challenges the labor market confronts as it heals from the severe beating it took during the worst recession since the 1930s.

The labor market is clearly improving, but it has a long, long way to go before it gets to any semblance of normalcy, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York.

Federal Reserve Chairman Ben Bernanke told a conference in Philadelphia that easing tight credit conditions for small businesses was critical to bringing down the unemployment rate, currently at 9.9 percent.

On Wall Street, stocks ended lower while prices for long-dated government bonds rallied. The U.S. dollar strengthened against the euro.

In a second report on Wednesday, the department said import prices increased 0.9 percent last month on higher petroleum costs after rising 0.5 percent in March. However, excluding the volatile petroleum category, prices were up only 0.3 percent, suggesting little inflationary pressure.

In spite of higher commodity costs, prices for imported finished goods appear sluggish, suggesting firms' pricing power remains limited, said Anna Piretti, an economist at BNP Paribas in New York.

Although initial jobless claims are falling only slowly, other measures of the labor market -- including the government's closely-watched monthly employment count -- suggest job growth is gaining steam as businesses become more confident of the strength of the economic recovery.

Data released last Friday showed payrolls grew by 290,000 in April -- the biggest gain in four years -- but the unemployment rate rose from 9.7 percent in March.

The improving labor market tone helped retailer Kohl's Corp post an 11 percent increase in net sales in the second quarter, but the retailer's executives said they preferred to be conservative in their forecasts.

Meanwhile, President Barack Obama, whose popularity has been dented by public anxiety over the labor market, said on Thursday the economy was heading in the right direction.

Despite all the naysayers -- who were predicting failure a year ago -- our economy is growing again. Next month it will be stronger than last month. And next year will be better than this year, Obama said at a factory in Buffalo, New York.

SLOW IMPROVEMENT

The economy has grown for three straight quarters and while employment has risen for four months in a row, some economists worry that the slow improvement in jobless claims, if sustained, could signal slower job growth ahead.

It's a little bit troubling, it gives us some pause that perhaps we won't see jobs (growth) of the same magnitude (as in April) going forward, said Andrew Gledhill, an economist at Moody's Economy.com in West Chester, Pennsylvania.

In the past recessions, when claims have been at these levels, we have not seen job gains of that magnitude, he added.

While claims continue to grind lower, the number of people still receiving jobless benefits after an initial week of aid unexpectedly rose by 12,000 to 4.63 million in the week ended May 1, the department said.

With unemployment still high and inflation pressures muted, the Federal Reserve -- the U.S. central bank -- should be able to keep its promise of ultra-low interest rates for an extended period, according to analysts.

The tame inflation outlook was underscored by the mild rise in nonpetroleum import prices, which were up 3.3 percent in the 12 months through April.

Analysts generally expect U.S. dollar strength and excess capacity in the global economy to keep a lid on prices of imported merchandise, excluding petroleum.

The department also said U.S. export prices rose 1.2 percent in April, building on the prior month's 0.7 percent advance. In the 12 months through April, export prices increased 5.7 percent, the largest gain since July 2008.

Separately, in another positive sign for the economy, lenders initiated far fewer new actions against struggling U.S. homeowners last month, RealtyTrac said on Thursday.

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