162,000 jobs added in July; jobless rate falls

Paul Davidson | USA TODAY

Show Caption Hide Caption Gold rises as jobs disappoint Gold rises as payrolls miss expectations, but prices remain in weak territory, Real Wealth Report's Larry Edelson tells Joe Deaux.

Economists had forecast 185%2C000 job gains for last month

Unemployment rate drops from 7.6%25 in June

Job growth for May and June revised down by 26%2C000

Employers added 162,000 jobs in July, adding to worries that the labor market may finally be wobbling amid federal spending cuts and a payroll tax increase.

The unemployment rate fell from 7.6% to 7.4%, its lowest since December 2008, the Labor Department said Friday,

A consensus forecast of economists had estimated that 185,000 jobs were added last month.

Businesses added 161,000 jobs on healthy gains by retailers, restaurants and professional and business services. Federal, state and local governments added 1,000.

Job gains for May and June were revised down by a total 26,000. May's gains were revised to 176,000 from 195,000 and June's to 188,000 from 195,000.

"We are likely seeing the effects" of the federal budget cuts, says Gus Faucher, senior economist of PNC Financial. "They may be a drag (on job growth) for another few months."

The jobless rate fell sharply because it's calculated from a survey of households that is separate from the survey of employers that produces the closely watched number of job gains. The household survey, which tends to better capture small-business hiring, showed an additional 227,000 Americans had jobs in July.

But other measures of the labor market weakened. The average workweek fell to 34.4 hours from 34.5 hours. When existing employees' hours are reduced, that typically indicates that not many new ones will soon be added. And average hourly earnings fell 2 cents to $23.98.

The number of temporary workers rose, but less than in previous months, with employers adding about 8,000. They traditionally hire such short-term employees before bringing on more permanent staffers.

The number of discouraged workers rose to 988,000, up 136,000 from a year earlier. Discouraged workers are those not currently looking for work because they believe there are no jobs available for them.

Still, the underemployment rate — which captures part-time workers who prefer full-time jobs and those who've stopped looking for work, as well as the unemployed — fell to 14% from 14.3%.

Retailers led job gains with 47,000, and food services and drinking places continued to boost hiring, adding 38,000 jobs. Professional and business services added 36,000. Financial firms added 15,000.

Manufacturers reversed recent months of job losses with a modest gain of 6,000 jobs. The industry has been hit by the federal cuts and the economic slowdown in Europe and China.

The construction industry cut 6,000 jobs despite the ongoing housing recovery.

Hopes for stronger-than-expected employment gains grew after reports Thursday showed that initial jobless claims fell sharply last week and payroll processor ADP estimated that the private sector added 200,000 jobs in July.

Average monthly job gains in that ballpark through the first half of the year have outpaced economic growth. The government said this week that the economy grew at an annual rate of 1.7% in the second quarter, a weak pace but better than economists had predicted. First-quarter growth, however, was revised down to 1.1% from 1.8%.

The economy is expected to pick up late this year as the impact of the federal deficit-cutting fades. Until then, analysts have been wondering whether economic growth will begin to match the stronger hiring pace, or if the labor market will finally sputter without better economic growth. Some economists have downplayed the solid payroll advances, noting that many of the new jobs are part-time positions in low-wage industries.