U..S hiring picked up in July; so did unemployment

WASHINGTON (AP) -- The U.S. economy generated 163,000 jobs in July after three months of weak hiring, a sign it is resilient enough to pull out of a midyear slump and grow modestly as the rest of the world slows down.

But employers aren't hiring enough to drive down the unemployment rate, which ticked up to 8.3 percent last month from 8.2 percent in June -- the 42nd straight month the jobless rate has exceeded 8 percent. The United States remains stuck with the weakest economic recovery since World War II.

The latest job numbers, released Friday by the Labor Department, provided fodder both for President Barack Obama, who highlighted improved hiring in the private sector, and Republican challenger Mitt Romney, who pointed toward higher unemployment.

"It's not especially weak, but it's not especially strong," said Scott Brown, chief economist at the investment firm Raymond James.

Investors focused on the positive. The Dow Jones industrials surged more than 220 points.

Three more monthly jobs reports will come out before Election Day, including the one on October employment on Friday, Nov. 2, four days before Americans vote.

No modern president has faced re-election when unemployment was so high. President Jimmy Carter was bounced from office in November 1980 when unemployment was 7.5 percent.

In remarks at the White House, Obama said the private sector has added 4.5 million jobs in the past 29 months. But he acknowledged there still are too many people out of work. "We've got more work to do on their behalf," he said.

Former Massachusetts Gov. Romney focused on the increase in the unemployment rate, as did other Republicans. "Middle-class Americans deserve better, and I believe America can do better," Romney said in a statement.

Worries have intensified that the U.S. economy will fall off a "fiscal cliff" at the end of the year. That's when more than $600 billion in tax increases and spending cuts will kick in unless Congress reaches a budget deal.

The draconian dose of austerity is meant to force Republicans and Democrats to compromise. If they can't and taxes go up and spending gets slashed, the economy will plunge into recession, contracting at an annual rate of 1.3 percent the first six months of 2013, according to the Congressional Budget Office.

The rest of the world is slowing. Much of Europe is in recession as policymakers struggle to deal with high government debts, weak banks and the threat that countries will abandon the euro currency and wreck the region's financial system. The high-powered economies of China, India and Brazil are slowing sharply, partly because Europe's troubles have hurt their exports.

The July job numbers "should ease fears that the U.S. economy is following Europe into recession," said Paul Ashworth, chief U.S. economist at Capital Economics.

But if the job picture keeps improving it could make it less likely the Fed will act to stimulate the economy at its next meeting Sept. 12-13. Earlier this week, the Fed left its policy unchanged but signaled it was ready to act if growth and hiring remained weak. That led many economists to predict the Fed would announce a third round of bond purchases designed to push long-term interest rates down and generate more borrowing and spending in the economy.

"If the previous three months of lackluster job creation were not enough to spur the (Fed) into acting more aggressively to stimulate the economy, these numbers must surely kill off the possibility of imminent action," said Chris Williamson, chief economist at Markit in London.

The job market got off to a strong start in 2012. Employers added an average 226,000 a month from January through March.

But the hiring spree was caused partly by a surprisingly warm winter that allowed construction companies and other firms to hire earlier in the year than usual, effectively stealing jobs from the spring. The payback showed up as weak hiring -- an average 73,000 a month -- from April through June.

Then came the 163,000 new jobs in July, beating the 100,000 economists had expected.

Now that the warm weather effects have worn off, economists expect job growth to settle into range of 100,000 to 150,000 a month.

Which would be consistent: The economy has added an average of 151,000 jobs a month this year. But that hasn't been enough to steadily bring unemployment down. At 8.3 percent, unemployment was as high in July as it had been in January.

But last month's uptick in joblessness was practically a rounding error: The unemployment rate blipped up from 8.22 percent in June to 8.25 in July.

The job market still has a long way to go. The economy lost 8.8 million jobs from the time employment peaked in January 2008 until it hit bottom in February 2010. Since then, just 4 million, or 46 percent, have been recovered. Never since World War II has the economy been so slow to recover all the jobs lost in a downturn.

A broader measure of weakness in the job market deteriorated in July: The proportion of Americans who were either unemployed, working part time because they couldn't find full-time work or too discouraged to look for work rose to 15 percent from 14.9 percent in June.

Nearly 5.2 million Americans have been out of work for six months or more.

Those lucky enough to have jobs aren't seeing their spending power grow. Average hourly wages increased by 2 cents to $23.52 an hour in July. Over the past year wages have increased 1.7 percent -- just matching the rate of inflation.

Eric Kosmack, 24, has applied for about 450 jobs since he graduated in January 2011 from Montclair State University in New Jersey. He is looking for a job in accounting to put his mathematics degree to work. He has had three temporary jobs since then, including one that ended Tuesday, but no luck in his search for a permanent one.

And many of the jobs he has seen described as "entry level" still ask for 1-3 years of experience, which he doesn't have. "I understand that they want to find the perfect candidate, but it seems like a long process," he said.

"The glass half full is that this report should ease fears that we're slipping into recession," said Michael Feroli, an economist JPMorgan Chase Bank. "The glass half empty is that the labor market generally still stinks when thinking about things that matter for people's well-being, like wage growth."

Government cutbacks continued to weigh heavily on the job market. The economy lost 9,000 government jobs last month and 660,000 over the past two years.

Private companies have picked up part of the slack. In fact, private payrolls are higher now than they were when Obama took office in January 2009.

In July, private sector job gains were broad-based. Manufacturing added 25,000 jobs, the most since March. Restaurants and bars added 29,000. Temporary help services added 14,100 jobs. Retailers hired 7,000 more workers. Education and health services gained 38,000.

Tania Dougherty, owner of The Little Wine Bus in New York, has two tour guides and wants to hire at least three more. That's because more companies are booking her daylong winery tours for employee outings.

After the financial crisis hit in 2008, companies cut back on bonuses, raises, vacation days and other perks, Dougherty said. But employers are now realizing they need to spend more money on their workers in order to retain them, she said.

"They want to show them a good time," said Dougherty. "People are working longer hours. It's a way to reward employees. They deserve the day out, and companies are realizing that."

Meanwhile, Sherry Sheppard, owner of the I Love Cupcakes store in Largo, Fla., would like to hire a new employee but is holding off until she's sure the economy is getting better. She has three employees now. If more people lose jobs, they'll be less likely to spend money on guilty pleasures like cupcakes, Sheppard said.

"Being that it's an election year, it's hard to tell how the economy is doing," Sheppard says. "Maybe after the election we'll get a better picture."

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AP Business Writer Joseph Pisani in New York contributed to this report.