Jobless Rate Falls but Payrolls Slump

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The U.S. unemployment rate fell in July for the first time in more than a year but employers chopped 44,000 jobs, the government said on Friday in a report that painted a mixed economic picture amid other signs of a rebound.

The jobless rate slid to 6.2 percent last month from 6.4 percent, the Labor Department (search) said. The decline was caused by an exodus of people from the labor force, not by any surge in hiring.

"I think it's a little disappointing," said Jay Bryson, economist at Wachovia Securities in Charlotte, North Carolina. "We're not generating job growth in manufacturing, and that's where job losses were concentrated."

Although economists did not expect the payroll drop, the bond market focused on the lower unemployment rate and Treasuries prices fell. The dollar rose but major stock indexes fell.

Even as the job market wallows in its third year of weakness, Americans' incomes have been holding up well and that is one reason economists remained hopeful about the future of the U.S. recovery. A report on Friday by the Commerce Department (search) showed that U.S. personal income rose by a healthy 0.3 percent in June and consumer spending increased by the same amount.

But a revival in the job market is lagging signs of improvement elsewhere in the economy.

"This is yet another example showing employment is the caboose in this long economic train," said economist Ken Mayland of Clearview Economics LLC in Cleveland, Ohio.

"Consumer demand is the locomotive, and it's accelerating, but it takes a while for that to be registered on the caboose end of things," Mayland added.

July's payroll drop marked the sixth month in a row the economy has lost jobs. It contrasted with the expectations of private economists that payrolls would grow by 18,000.

The unemployment rate was lower than the 6.3 percent rate projected by U.S. economists in a Reuters survey. It was the first time unemployment rate has fallen since May 2002.

The mixed employment data followed a string of upbeat reports. Those have included a drop in jobless claims below the key 400,000 level and data from the Commerce Department showing the economy grew by a faster-than-expected 2.4 percent in the second quarter of this year.

The government said 556,000 departed the labor force, the biggest drop since May 1995. Big drops in the labor force can occur as job seekers become discouraged and abandon their searches. Unless they are actively searching for a job, workers are not counted as unemployed.

The jobless rate is calculated from a survey of households that is separate from the poll of businesses used to compute payrolls.

There were also signs of weakness elsewhere as the worker hours were cut back to 33.6 per week in July from 33.7 hours in June. Factory hours fell to 40.1 a week from 40.3 in the prior month.

Although some reports have indicated recovery in the beleaguered factory, plants are still cutting jobs aggressively.

Manufacturing payrolls fell 71,000 in July after a 63,000 drop in June.

The drop in overall payrolls for June was revised downward to a 72,000 drop from an initially reported 30,000 decrease.