WASHINGTON (AP) -- U.S. employers added fewer jobs in July but 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 employers added 162,000 jobs, the fewest since March, and that the unemployment fell from 7.6 percent in June as more Americans found jobs.
Still, the economy created 26,000 fewer jobs in May and June than previously estimated. Americans worked fewer hours in July, and their pay dipped. The figures suggest weak economic growth may be making businesses cautious about hiring.
Job growth for the year still remains solid. The economy has created 200,000 jobs a month since January. However, the pace has slowed in the past three months to 175,000.
"A clearly weaker-than-expected report, but one should not overstate it — the unemployment rate continues to trend down and average job growth of 175,000 will be more than enough to continue to push it lower," Peter Newland, an economist at Barclays Capital, said in a note to clients.
Reaction to the employment report on Wall Street 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 July employment data as it decides whether to scale back its $85 billion a month in bond purchases later this year. Weaker hiring could make the Fed hold off on tapering at its September meeting. However, economists noted that the drop in unemployment, along with steady hiring gains over the past year, could be enough to convince the Fed that the job market has made significant gains.
"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."
Revisions showed employers added fewer jobs in the previous two months: May's job growth was downgraded to 176,000, below the 195,000 previously estimated; job gains in June were lowered to 188,000, from the 195,000 reported last month.
And the job gains in July were mostly in lower-paying industries, such as retail, hotels and restaurants.
But some were better-paying positions. 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.
Governments added jobs for the first time since April, driven by the fifth straight month of hiring by local government.
The economy grew at a subpar 1.7 percent annual rate in April-June quarter, the government said Wednesday. 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.