US economy mixed as jobs growth slows The US economy added 162,000 jobs in July, slightly below economists" expectations, but the unemployment rate fell to 7.4 per cent from 7.6 per cent, leaving the Federal Reserve with mixed signals as it weighs a taper in bond purchases. The jobs report for July follows a relatively upbeat series of economic indicators this week, including a much better than expected reading on second-quarter gross domestic product, which rose at an annualised rate of 1.7 per cent. The Institute for Supply Management's index of manufacturing activity for July also rose much higher than expected to its best level in two years. It comes at a critical time for policy makers at the Federal Reserve who are deciding whether to slow the pace of support for the US economy as early as their next meeting in September. This week, the Fed's interest-rate setting committee maintained the $85bn-per-month rate of asset purchases, but Ben Bernanke, the Fed chairman, has indicated that if the economic recovery advances without glitches, some tapering of those bond buys would begin later this year, and end by the middle of next year. The payrolls data were worse than the 185,000 jobs predicted by economists, which could give pause to the Fed given also that downward revisions worth 26,000 positions were made to previous months. But the drop in the unemployment rate to 7.4 per cent brings it closer to the 7 per cent level indicated by Mr Bernanke as likely to lead to an end of asset purchases by the middle of next year. Moreover, the drop in the unemployment rate was driven by a rise in employment and a drop in the unemployed, rather than a big exodus from the labour force. "The surprisingly resilient labour market sustained moderate job gains this spring and summer, even with the sequester (cut in federal government spending) and a weak global economy," said Kathy Bostjancic, an economist at the Conference Board. "The self-sustaining trend in employment growth is likely strong enough to allow the Federal Reserve to begin tapering its quantitative easing by the end of the year," she said. Within the jobs report, one of the most dispiriting factors was a decline in both average weekly hours, which declined to 34.4 from 34.5 and average hourly earnings, which ticked down from $24 to $23.98. But there were some brighter spots. The government added 1,000 jobs after shedding positions in previous months. The manufacturing sector also added another 6,000 jobs when it too was losing jobs recently. The biggest gains came in retailing, which added 46,800 jobs. The financial sector added 15,000 jobs, while the pace of temporary job creation declined to 7,700. Construction actually lost 6,000 position, offering evidence that the housing rebound has not translated into consistent job creation. The jobs report also comes as US lawmakers are gearing up to head away from Washington for a month-long summer recess, without any agreement on fiscal policy. One of the biggest clouds on the US economic horizon is the possibility that America could face a shutdown of its government or even a default on its debt between October and December if Congress cannot bridge its differences. President Barack Obama tried to break the deadlock this week by proposing to link his corporate tax reform plan to new infrastructure spending based stimulus for the economy, but many Republicans shunned the offer. "We still feel that [the Fed] will be wary of tapering when there is still no agreement on the debt ceiling [and] fiscal situation, having seen the damage that this issue caused in 2011," says James Knightley, an economist at ING. "As such, while the market still favours a September start to QE tapering we would not be surprised to see it delayed until December and possibly even beyond that," he added.