U.S. unemployment rate falls despite tepid job growth

U.S. employers added 162,000 jobs in July, the fewest since March. The gains were enough to lower the unemployment rate to a 4-1/2 -year low of 7.4 percent, a good sign in an otherwise lackluster report.

The Labor Department said Friday that unemployment fell from 7.6 percent in June.

The economy added 26,000 fewer jobs in May and June than previously estimated. Americans worked fewer hours. And their pay dipped. The figures suggest weak economic growth may be making businesses cautious about hiring.

Reaction to the jobs report on financial markets was slightly negative. Stock index futures gave up early gains and were little changed shortly after the report came out. The yield on the benchmark 10-year Treasury note fell to 2.64 percent from 2.71 percent as investors bought U.S. government bonds.

The Federal Reserve will pay particularly close attention to the employment data as it decides whether to scale back its $85 billion monthly bond purchases later this year. Weaker hiring could make the Fed less likely to taper at its September meeting.

The government said employers added 176,000 jobs in May, below the 195,000 previously estimated. And job gains were 188,000 in June, down from the 195,000 reported last month. That slowed the three-month average to just 175,000 jobs a month. While that's enough to slowly lower the unemployment rate, it's below the more robust pace of 200,000 jobs a month logged since January.

The job gains were mostly in lower-paying industries, such as retail, hotels and restaurants. But some positions were added in better-paying areas. Manufacturing added 6,000 jobs, driven by strong gains at auto plants. Those were the first job gains at U.S. factories since February. And professional services such as finance, accounting and information technology also increased.

Economic growth remains sluggish. The economy grew at a subpar 1.7-percent annual rate in April-June quarter, the government said Wednesday, citing preliminary numbers that are likely to be adjusted next month. While that was an improvement over the previous two quarters, it's still far too weak to rapidly lower unemployment.

Recent data suggest that the economy could strengthen in the second half of the year.

A survey Thursday showed that factories increased production and received a surge of new orders in July, propelling the fastest expansion in more than two years.

The survey, by the Institute for Supply Management, also showed that the housing recovery is spurring more output by lumber companies, furniture makers and appliance manufacturers.

Businesses have ordered more industrial machinery and other equipment for four straight months. Europe's troubled economies are showing signs of recovery, potentially a lift to U.S. exports.

U.S. automakers are reporting their best sales since the recession, a sign that Americans are confident enough in their finances to make large purchases. Car sales rose 14 percent in July from 12 months earlier, to 1.3 million.

Healthy sales have encouraged more hiring by Ford Motor Co. The company said last week that it will hire 800 salaried professionals this year, mostly in areas such as information technology, product development and quality control.