WASHINGTON (AP) — The job market is looking a little brighter at the start of the new year.

Weekly unemployment benefit applications have fallen to levels last seen more than three years ago. Holiday sales were solid. Service companies grew a little faster in December. And many small businesses say they plan to add jobs over the next three months.

The mix of private and government data released Thursday sketched a picture of an economy that is slowly strengthening, stoking optimism one day ahead of the government's important read on December job growth.

"Businesses have increased hiring to meet the underlying pick-up in (consumer) demand," said Neil Dutta, an economist at Bank of America Merrill Lynch.

The encouraging reports on the U.S. economy offset renewed concerns over the debt crisis in Europe, lifting stocks in late-afternoon trading. The Dow Jones industrial average was mostly flat, while broader indexes posted modest gains.

Weekly applications for unemployment benefits dropped to a seasonally adjusted 372,000 last week, the Labor Department said Thursday. That's 11 percent lower than the same time last year.

Almost the entire descent occurred this fall. Applications had fluctuated sharply over the first nine months of 2011, falling as low as 375,000 and rising as high as 478,000. By early September, they were at 432,000 — only 5,000 below where they began the year.

Since then, applications have declined steadily. That has pushed the four-week average, which smooths fluctuations, to 373,250 — the lowest level since June 2008.

When applications drop below 375,000 — consistently — they generally signal that hiring is strong enough to reduce the unemployment rate.

U.S. service firms, which employ roughly 90 percent of the work force, grew a little faster in December, according to the Institute for Supply Management.

The trade group of purchasing managers said its index of non-manufacturing activity rose to 52.6. That's slightly above November's reading of 52 — the lowest in nearly two years — but well below last year's high of 59.7 recorded in February.

Any reading above 50 indicates expansion.

An increase in new orders and stronger imports drove last month's modest expansion. But a gauge of hiring showed many service firms were hesitant to add workers.

Retailers, meanwhile, reported solid but not spectacular sales gains last month. And much of the increase stemmed from heavy discounting that will likely cut into profits.

Sales rose 3.5 percent in December for a group of 25 retail chains tracked by the International Council of Shopping Centers. Holiday sales, which cover the last two months of the year, rose 3.3 percent, a decent rise but less than last year's gain.

Small businesses remain encouraged about their plans to hire over the next three months. The National Federation of Independent Business says the proportion of those firms that expect to add workers is slightly off from the three-year high hit last month.

Economists are predicting that overall hiring increased in December and will strengthen this year.

John Ryding, an economist at RDQ Economics, forecasts that employers added 180,000 jobs last month, a big jump from November's 120,000 net jobs.

Economists surveyed by the Associated Press project that the economy will generate an average of 175,000 jobs per month this year. That would be a step up from average monthly gains of 130,000 last year and 78,000 in 2010.

In November, the unemployment rate fell to 8.6 percent from 9 percent. Still, about half that decline occurred because many of the unemployed gave up looking for work. When people stop looking for a job, they're no longer counted as unemployed.

The pickup in hiring reflects some modest improvement in the economy. Growth will likely top 3 percent at an annual rate in the final three months of this year, economists expect. That would be a sharp improvement over the 1.8 percent growth in the July-September quarter.

Even so, many economists forecast that growth could slow to roughly 2 percent this year. Europe is almost certain to fall into recession because of its financial troubles. And without more jobs and higher incomes, consumers may have to cut back on spending. That could drag on growth in 2012.