US unemployment sinks to 7.4% as 162,000 jobs added

The US unemployment rate fell to a four-year low of 7.4 percent in July as the economy added 162,000 jobs, the Labor Department said Friday in a weaker-than-expected report. The decline in the jobless rate from 7.6 percent in June surprised analysts, who had expected only a one-tenth point drop. Although jobs growth came in less than expected, analysts pointed to the trend of a slowly improving labor market four years after the Great Recession ended. "The pace of US job creation took a step back in July, but the modest slowdown does not alter the forecast for the rest of 2013," said Ryan Sweet of Moody's Analytics. Sweet added that the slowdown was "inevitable" in an economy that has had an average 1.0 percent growth rate for the past three quarters. The mixed jobs report raised conflicting speculation about whether the Federal Reserve would soon begin tapering its $85 billion-a-month bond-buying program. The White House said the data further confirmed the economy was recovering, and called on opposition Republican lawmakers to replace the sequester -- automatic severe spending cuts -- with a balanced deficit reduction plan. "With the recovery entering its fifth year, we need to build on the progress we have made so far and now is not the time for Washington to impose self-inflicted wounds," said Alan Krueger, President Barack Obama's chief economic adviser. John Boehner, the Republican Speaker of the House of Representatives, said Obama's stimulus and other fiscal policies had "left our economy treading water with slow growth, high unemployment, and stagnant wages" and argued for his business-friendly party's alternatives. Private-sector employers appeared cautious about expanding their payrolls amid tepid growth in the economy, adding a much weaker-than-expected 161,000 jobs, down from a downwardly revised 196,000 in June. In a sign of the weakness of the jobs market, about half of the gains were in retail trade and food services and bars, typically low-paying jobs. The government added 1,000 jobs. Downward revisions to overall jobs growth figures for May and June sliced away 26,000 jobs. The average pace of jobs growth over the last three months was 175,000. The July jobs growth was well below the 175,000 expected on average by analysts. But at 7.4 percent, the jobless rate was the lowest since December 2008. The number of unemployed people fell slightly to 11.5 million. The soft jobs news weighed on markets. Wall Street stocks traded modestly lower after setting record highs on Thursday; Treasury yields spiked. The New York benchmark oil price fell about 1.0 percent and the dollar slipped, losing 0.5 percent against the euro. IHS Global Insight's chief US economist, Douglas Handler, said the report muddies the debate about when the Fed may begin tapering the bond-buying program, known as quantitative easing. The two-tenths point drop in the jobless rate "adds credence to a sooner vs. later argument," he said. "But other mitigating factors -- a reduced labor force and near-term weakness in average hours and earnings -- argue for starting this tapering in 2014." Ian Shepherdson of Pantheon Macroeconomics said the decline in the jobless rate puts it on track to hit the Fed's fourth-quarter target of 7.2-7.3 percent. "We expect a robust August employment report, and think September tapering is a 70/30 bet," he said. The number of officially unemployed fell by 263,000 to 11.5 million in July, while 240,000 people dropped out of the labor market. The number of people employed part-time for economic reasons -- because their hours were cut back or they could not find a full-time job -- rose slightly to 8.2 million. The long-term unemployed -- those out of work at least 27 weeks -- fell by 82,000 to 4.2 million. In the private sector, the average workweek shrank slightly and average hourly earnings fell two cents. "The establishment (unemployment) survey fell short of expectations -- including hours and earnings as well as payrolls -- although through the volatility the trends still look solid," said Jim O'Sullivan, chief US economist at High Frequency Economics. "The trend in employment growth still looks more than strong enough to keep unemployment trending down."