WASHINGTON (AP) -- The number of newly laid off workers seeking unemployment benefits dropped much more than expected last week.

The Labor Department reported Thursday that applications for unemployment benefits fell to 365,000, a decline of 18,000 from the previous week. Economists had been looking for a much smaller decrease of around 5,000.

Weekly jobless claims have been exceptionally volatile in recent weeks because of strike-related layoffs in the auto industry and an unusually early Easter, which has played havoc with the government's seasonal adjustment measurements.

Many economists believe that a prolonged housing slump and severe credit crisis have pushed the economy into a recession. For that reason, they believe job layoffs will rise in coming months as the unemployment rate climbs higher.

However, they said the job losses may be less severe than in previous recessions because they believe this downturn will be relatively mild and brief. The Bush administration is counting on 130 million economic stimulus payments to boost consumer spending and trigger a rebound in growth starting this summer.

The Labor Department reported last week that employers cut jobs for a fourth straight month, often a sign of a recession, but the job loss of 20,000 was much smaller than had been expected and was well below the 81,000 jobs lost in March.

In other economic news, consumers gave retailers some relief in April after a long stretch of dismal sales. Early reports from the nation's big chain stores showed customers bought the basics at discounters and wholesale clubs, putting Wal-Mart Stores Inc. and Costco Wholesale Corp. among the top performers last month.

Analysts predicted that the flood of rebate checks will boost sales in coming months, helping to offset soaring gasoline prices and falling home values.

The report on jobless claims showed that the total number of laid off workers receiving benefits dipped slightly to 3.02 million for the week ending April 26 but remained above the 3 million-mark for the second straight week.

For the week ending April 26, 32 states and territories had a drop in initial claims while 21 had increases.

The biggest increase was in Massachusetts, a rise of 5,591 that was attributed to higher layoffs in transportation, services and public administration.

Other states with big increases were New York, up 4,648; Kentucky, up 3,776, and New Jersey, up 3,521.

The state with the biggest decline was Texas, where jobless claims fell by 3,373, reflecting fewer layoffs in trade, service and manufacturing industries. Other states with large declines were Rhode Island, down 1,835; California, down 1,689, and Pennsylvania, down 1,597.