The number of Americans out of work dropped slightly last month, but economists said it wasn't necessarily an indication that finding a job has gotten any easier.
The U.S. unemployment rate declined to 6.2 percent in July, down from a nine-year high of 6.4 percent in June. But the number of people in the labor force shrank by 556,000 to 146 million, according to the U.S. Department of Labor.
About 470,000 people simply stopped looking for work out of fear that they wouldn't find anything, economists said.
"It was a disappointing report because the labor market continues to deteriorate," said Sophia Koropeckyj of Economy.com in West Chester, Pa.
The dreary news pushed stock prices lower yesterday. The Dow Jones industrial average fell nearly 80 points.
July was the sixth straight month that companies cut payroll, as businesses remained cautious even while the economy appears to be rebounding.
The labor market is usually the last to show signs of improvement during an economic turnaround, but many economists had expected payrolls to increase by now.
"I think the economy is on the road to stronger growth," said David Resler, chief economist with Nomura Securities International Inc. in New York. "This shows that the road is still bumpy. We won't get to the smooth parts of the highway until we've seen several months of gains in employment."
Maryland employment figures for June, also released yesterday, showed a somewhat better picture for the state, which has consistently outperformed the rest of the country, but still reflected softness on the job front.
Maryland's unemployment rose to 4.6 percent in June from 4.3 percent in May. The numbers are not seasonally adjusted and lag behind the national figures by a month.
"There is no cause for celebration in these numbers," said Anirban Basu, head of Optimal Solutions Group, an economic policy and consulting firm in Fells Point. "People are not entering the labor force on many occasions because they figure they're not going to find work."
Manufacturers across the nation continued to cut jobs. The sector lost 71,000 positions in July, the 36th consecutive month of losses - even as manufacturing output expanded in July for the first time in five months.
"The first thing a manufacturer is going to do is increase hours for the existing work force before thinking about hiring more workers," said Koropeckyj, the Economy.com analyst.
Transportation lost 14,000 jobs nationwide. Government employment fell by 115,000 jobs, and education and health services had 1,000 fewer positions in July compared with June.
One sign of optimism: the nation's businesses hired 42,000 more temporary employees in July than during the prior month. Companies might hire these workers as business improves, before bringing on permanent help.
"That's a sign that companies may be preparing for more permanent hires, but not convinced business conditions have improved in a permanent way," Resler said. "One of the things holding back permanent jobs is the steep rise in benefit costs.
"Businesses don't want to put people permanently on the payroll because when they do, they're committed to covering them for health insurance from that day until 15 months after they leave."
Economists still predict that the economy and labor market will continue to improve this year.
"I think we are getting to the point where businesses are going to start hiring more workers or at least stop laying people off," Resler said.
Help-wanted advertising is increasing, Koropeckyj said. In Maryland, Basu pointed to solid retail and home sales numbers and a drop in unemployment claims as signs that the economy is improving and the labor market should follow.
The Baltimore region posted a 5.2 percent unemployment rate in June, compared with 4.8 percent in May. Baltimore City's rate was 8.8 percent in June, compared with 7.7 percent in May.
"There's no question in my mind," Basu said, "that we've reached a place in the economy where things will start to get better from here on out."