WASHINGTON — U.S. employers added 162,000 jobs in July, a modest increase and the fewest since March. At the same time, the unemployment rate fell to a 4½-year low of 7.4 percent, a hopeful sign.
Unemployment declined from 7.6 percent in June because more Americans found jobs, and others stopped looking and were no longer counted as unemployed.
Still, Friday's report from the Labor Department pointed to a less-than-robust job market. It suggested that the economy's subpar growth and modest consumer spending are making many businesses cautious about hiring.
The government said employers added a combined 26,000 fewer jobs in May and June than it previously estimated. Americans worked fewer hours in July, and their average pay dipped. And many of the jobs employers added last month were for lower-paying work at stores, bars and restaurants.
For the year, job growth has remained steady. The economy has added an average 200,000 jobs a month since January, though the pace has slowed in the past three months to 175,000.
Nariman Behravesh, chief economist at IHS Global Insight, called the employment report "slightly negative," in part because job growth for May and June was revised down.
Scott Anderson, chief economist at Bank of the West, said it showed "a mixed labor market picture of continued improvement but at a still frustratingly slow pace."
The reaction from investors was muted. The Dow Jones industrial average fell about 9 points in midafternoon trading. The yield on the 10-year Treasury note fell to 2.62 percent from 2.71 percent.
The Federal Reserve will review the July employment data in deciding whether to slow its $85 billion a month in bond purchases in September, as many economists have predicted it will do. Weaker hiring could make the Fed hold off on any pullback in its bond buying, which has helped keep long-term borrowing costs down.
Beth Ann Bovino, senior economist at Standard & Poor's, said she thinks Friday's report will make the Fed delay a slowdown in bond buying.
"September seems very unlikely now," she says. "I'm wondering if December is still in the cards."
Still, it's possible that the lower unemployment rate, along with the hiring gains over the past year, could convince the Fed that the job market is strengthening consistently.
"While July itself was a bit disappointing, the Fed will be looking at the cumulative improvement," said Paul Ashworth, chief U.S. economist at Capital Economics. "On that score, the unemployment rate has fallen from 8.1 percent last August to 7.4 percent this July, which is a significant improvement."
The government uses a survey of mostly large businesses and government agencies to determine how many jobs are added or lost each month. That's the survey that produced the gain of 162,000 jobs for July.
It uses a separate survey of households to calculate the unemployment rate. That survey captures hiring by companies of all sizes, including small businesses, new companies, farm workers and the self-employed.
The household survey found that 227,000 more people said they were employed last month. And 37,000 people stopped looking for work and were no longer counted as unemployed.
The number of self-employed jumped 241,000, or 2.6 percent, to 9.7 million — the most in eight months. This group includes freelance workers, construction contractors, lawyers and other professionals with solo practices and farmers and ranchers.
Combined, those factors explain why the unemployment rate declined from 7.6 percent to 7.4 percent.
More than half of July's job gain came from lower-paying industries, extending a trend that is limiting Americans' incomes and possibly slowing consumer spending. Retailers, for example, added nearly 47,000 jobs — the biggest gain for any industry last month. Restaurants and bars added 38,400.
One Atlanta-based retailer, Cellairis, which sells mobile phone accessories, says it hired about 75 employees last month to meet growing demand. The company has 650 U.S. outlets, nearly all of them mall kiosks. It plans to add 45 walk-in stores this year.
"People are willing to spend more now to protect and personalize their devices," said CEO Taki Skouras.
By contrast, employers in higher-paying industries, like Stripmatic, a steel parts maker in Cleveland, remain wary. Stripmatic hasn't hired anyone since adding five workers in the first three months of the year. Revenue has been 10 percent below projections this year.
The company's exports have picked up a bit in Mexico and Brazil but remain flat in Asia. Company President Bill Adler says he's concerned that slower growth in China could hamper his overseas sales this year.
Low-paying industries have accounted for 61 percent of jobs added this year, even though they represent only 39 percent of U.S. jobs overall, according to Labor Department numbers analyzed by Moody's Analytics. Mid-paying industries have accounted for fewer than 22 percent of the jobs added.
Some job gains were made in higher-paying fields last month. Financial services, which includes banking, real estate and insurance, added 15,000. Information technology added 4,300, accounting 2,500. And manufacturing added 6,000 jobs, though that figure was offset by an equivalent loss in construction.
One growing source of better-paying jobs is local governments. They've now added jobs for five straight months and have helped offset job cuts by state and federal governments.
The result is that governments overall are much less of a drag on hiring than they were earlier in the economic recovery. All told, they've shed 39,000 jobs in the 12 months that ended in July. That's down from a loss of 137,000 in the 12 months that ended in July 2012.
Most of the hiring by local governments has been for teachers and other jobs related to education. Local property tax revenue, a key source of funding for counties and cities, fell after the recession but has begun to recover in some communities. Nationwide, home prices have risen steadily, a trend that typically leads to higher property tax revenue.
More broadly, many of the jobs added in July are only part time. The number of Americans who said they were working part time but would prefer full-time work stands at 8.2 million — the highest since last fall. Part-time jobs account for 65 percent of the jobs added in July and 77 percent of those added this year.
The percentage of Americans either working or actively looking for work dipped in July to 63.4 percent. This is called the "labor force participation rate." The participation rate has been generally declining since peaking at 67.3 percent in 2000. That's partly the result of baby boomers retiring and leaving the workforce.
Job gains are being slowed by the economy's tepid growth. It grew at an annual rate of just 1.7 percent in the April-June quarter, the government said this week. That was an improvement over the previous two quarters, but 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. The housing market is rebounding. Factories increased production and received a surge of orders in July, propelling the fastest expansion in more than two years.
Businesses have ordered more 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.
AP Economics Writers Paul Wiseman and Martin Crutsinger contributed to this report. Follow Christopher S. Rugaber at http://twitter.com/ChrisRugaber .
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