Economy adds 162,000 jobs, unemployment falls to 7.4 percent

The economy added 162,000 jobs in July, below expectations, and the unemployment rate dipped to 7.4 percent, the Labor Department reported Friday.

The jobs number came in slightly below expectations that were boosted by a week of solid economic data. Most forecasters predicted the jobs number would come in somewhere between 185,000 and 200,000 jobs.

And the nation's labor market took another slight hit as the Bureau of Labor Statistics revised downward the number of jobs created in June, from 195,000 to 188,000. 

In May and June combined, there were 26,000 fewer jobs created than originally reported. In the last year, the economy has added on average 189,000 jobs per month.

And while the unemployment rate took a sizable dip, down from 7.6 percent in June, much of that appears to be due to fewer people out in the job market looking for work. 

Roughly 200,000 more people fell out of the labor force in July when compared to June.

The White House said the report served as "further confirmation that the U.S. economy is continuing to recovery," and called on Washington to avoid "self-inflicted wounds" like the sequester.

"The across-the-board budget cuts known as the sequester continue to be a drag on the economy now and in the future," said Alan Krueger, the head of the president's Council of Economic Advisers.

Many of the job gains were concentrated in the retail, food, financial, and trade industries. Meanwhile, manufacturing jobs have been effectively flat for the last year, and jobs in the health care sector, which typically weathers economic challenges, were flat in July.

Additional disappointing data in Friday's report showed that employees were working slightly less in July, and bringing home a slightly smaller paycheck. The average workweek dipped by 0.1 hours in July, and the average hourly earnings dropped by two cents, after jumping up by 10 cents in June.

Friday's report followed a string of solid economic data that had driven up expectations for the jobs data. 

On Wednesday, the Commerce Department reported the economy grew by 1.7 percent in the second quarter of the year, beating expectations and suggesting the broader economy may be able to weather to fiscal strain coming from Washington via sequester cuts and tax hikes. 

On Thursday, the Labor Department reported first-time claims for jobless benefits were down as well.

But Friday's report suggests that the economy is continuing to improve, but still at a slow pace.

The future of the labor market should loom large over coming policymaking debates. 

Congress is set to break for a month-long August recess, but will return ready to duke it out over major fiscal issues. 

Both parties will need to strike deals to keep the government funded and boost the nation's borrowing cap, but so far Republicans and Democrats remain far apart on whether they should adhere to budget caps that emerged from the 2011 debt limit battle.

Meanwhile, the Federal Reserve has said it will closely monitor developments in the labor market as it searches for the right time to begin to wean the economy from the stimulus it has provided for the last several years. 

Federal Reserve Chairman Ben Bernanke has said the central bank will react to data, particularly jobs data, as it comes in, and believes it will begin rolling back its extremely accommodative policy in the coming months.

House Majority Leader Eric CantorEric Ivan CantorRace for Republican Speaker rare chance to unify party for election Scalise allies upset over Ryan blindside on McCarthy endorsement 2018 will test the power of political nobodies MORE (R-Va.) was quick to point out troubling details beneath the report's surface and blast the president's policies.

"While the unemployment number dropping looks good on the surface, the details show otherwise. Persistent long-term unemployment, discouraged people leaving the workforce, and millions taking part-time jobs because they have no choice are not signs of a strong recovery," Cantor said in a statement. "The president’s policies are holding back strong job creation."

Speaker John BoehnerJohn Andrew BoehnerA warning to Ryan’s successor: The Speakership is no cakewalk With Ryan out, let’s blow up the process for selecting the next Speaker Race for Republican Speaker rare chance to unify party for election MORE (R-Ohio) said the report proved the economy was "treading water" under the president's policies.

"Three years after the Obama administration proclaimed ‘welcome to the recovery,’ we’re still seeing the same thing month after month: not enough new jobs and an unemployment rate far higher than promised," he said.

Updated at 8:46 a.m. and 9:06 a.m. and 9:56 a.m.