Initial jobless claims dropped sharply in the latest reporting week to their lowest level since July, a signal that unemployment may soon stabilize, the Labor Department said yesterday.

The drop in claims in the week ending Dec. 11--from 591,000 to 533,000--was the third consecutive weekly decline, and was described as "welcome news for the holiday season" by Commerce Department chief economist Robert Ortner yesterday.

Although these figures are often distorted during December because of the difficulty of making seasonal adjustments, many economists believe that the successive recent declines in the initial claims are a sign that the jobs picture is beginning to improve. Yesterday's figures are "extremely encouraging," said economist Allen Sinai of Data Resources. They show "we are approaching the end of the unemployment increases" that have sent the jobless rate to its highest level since 1940.

However, Sinai said he still expected the December unemployment rate to top last month's 10.8 percent. The drop in jobless claims--from a high in September of 703,000--indicates that firms have "pretty much finished laying off people" Sinai explained. But before the jobless rate goes down companies must start to rehire and there is "no sign" of this as yet, Sinai said.

The total number of claims for unemployment benefits under regular state programs also dropped in the latest week, from 4.71 million to 4.52 million, the Labor Department report said. The insured unemployment rate--the proportion of the labor force drawing jobless benefits--dropped to 5.2 percent for the week ending Dec. 4 from 5.4 percent.

Despite signs that the recession is drawing to a close--such as recent strong increases in housing starts and the drop in initial claims--the Commerce Department this week projected a decline in the nation's total gross national product in the current quarter. Moreover, most analysts expect the recovery to be much slower than average when it does eventually begin.

The GNP "flash" forecast suggests that the Federal Reserve Board must maintain its accommodative stance of recent months and reduce its key discount rate further in order to ensure recovery, economist Henry Kaufman of Salamon Brothers said yesterday in his regular weekly newsletter.

The Fed last lowered its discount rate--charged by the Fed to institutions that borrow funds at its discount window--on Monday, Dec. 13. The major banks have not as yet followed that decline, to 8 1/2 percent, with a cut in the prime rate. This remains at 11 1/2 percent.

Some economists believe that further rate cuts will be necessary to support a recovery. As yet consumer spending has not picked up sufficiently to spur a healthy upturn in production, although November retail sales were boosted by a surge in auto purchases.

The reports about Christmas sales have been mixed so far, with some evidence of a pickup in recent days after a sluggish start. There have been six to eight months of increases in retail sales, Sinai said, and "good strength in autos and construction." Together, these suggest that the economy may be "almost at the end of this downturn," he said.