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Unemployment Rate Falls to 7.4 Percent

Danielle Kurtzleben

Employers added 162,000 jobs in July, with the unemployment rate ticking downward from 7.6 percent to 7.4 percent, the Labor Department reported Friday.

The numbers come as something of a disappointment. A job count of 162,000 is shy of consensus expectations of around 175,000, according to Bloomberg. Likewise, the jobless rate can be deceptive in measuring the health of the job market. The jobless rate only counts people who are jobless and currently looking for work. If people get discouraged in their job hunts and stop looking for work, it can send the unemployment rate down.

[READ: ADP: 200,000 Private Sector Jobs in July]

That helps to explain why the jobless rate moved downward in July. The labor force participation rate, which measures the share of Americans either working or seeking work, ticked downward from 63.5 percent to 63.4 percent. That's well below the 63.7 percent seen in July 2012. Many economists say that significant growth in the labor force participation rate will be a key signal that the job market is improving.

The problem, says one analyst, is that hiring will need to pick up strongly before people are encouraged to start filling out applications again.

"It's a success leads to further success scenario," says Mark Hamrick, Washington bureau chief at Bankrate.com. "Until you see more impressive hiring numbers, it's hard to imagine that a large number of people are going to jump back into the job market to think they stand a terrific chance of being hired."

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July's 162,000 jobs figure continues a long-standing pattern of the U.S. economy adding 150,000 to 200,000 jobs per month. It is also a slowdown from June's 188,000 new jobs.

Retail added the most jobs of any industry last month, with nearly 47,000 new workers. Professional and business services, a broad category that includes accountants and administrative workers, added 36,000 workers. Leisure and hospitality came in with 23,000 jobs. Meanwhile, construction lost 6,000 jobs, despite recent strong improvements in the housing market.

Getting faster job growth will require all industries to improve together, says one economist.

"I think the challenge to this jobs recovery is a broadening. That's the way we get acceleration," says Patrick O'Keefe, director of economic research at CohnReznick.

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That broadening could be tough to come by. He points out that health care, which led job growth throughout both the recession and recovery, is weakening. Health care added only 8,300 jobs last month, down from 18,400 in June. Likewise, gains in construction and manufacturing have been uneven.

One area where strong growth is not to be expected is the public sector. Government added 1,000 jobs last month, reflecting rare (and minimal) growth in public sector jobs. This is the first uptick in that number since April and bucks an otherwise downward trend. Government has lost more than 1.1 million jobs since hitting a peak of nearly 23 million workers in 2009.

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