The unemployment rate fell to 8.4 percent this month from 10.2 percent in July.
Before the pandemic struck the economy in March, the number of people seeking jobless aid had never topped 700,000 in a week, not even during the depths of the 2007-2009 Great Recession.
Initial unemployment claims in Alabama dropped almost 10 percent last week compared to two weeks ago, according to Department of Labor data released Thursday.
The economy added 1.4 million jobs in August, which follows a gain of 1.8 million in July.
Adjusted for the misclassification of workers who should have been labelled as unemployed -a problem plaguing the data in recent months - the jobless rate would have been 0.7 percentage point higher in August, the Labour Department said.
Economists had been predicting about 950,000 applications in the latest week.
And many economists think hiring is slowing.
According to the Labor Department, first-time jobless claims for the week ended August 29 fell by 130,000 to 881,000 - only the second time it came in below a million amid the COVID-19 health crisis.
And the drop in insured unemployment may also be indicative of people who have been receiving benefits for so long, they have exhausted their allocation. While an improvement, it still shows a tendency for job shedding, as any number below 50 represents contraction.
The number of Americans filing new claims for unemployment benefits fell more than expected last week, but remained extraordinarily high amid signs that labour market recovery was losing steam as the COVID-19 pandemic continues and government support lapses.
Wednesday's report from the Federal Reserve delivered another mixed labor market signal.
The unemployment was at a decades-low 3.5% in February, before the COVID-19 lockdowns began in the U.S.