Employers expanded their payrolls in July at the slowest pace since February and the jobless rate ticked up to its highest since the start of the year, a government report showed on Friday.

In another sign of slowing growth, the Institute for Supply Management reported signs of a weakening service sector as its index of July activity fell to 55.8 from 60.7 in June. Any reading over 50 indicates growth.

Problems in the housing sector, where lenders are encountering difficulties with rising mortgage defaults and prices are declining in many metro markets, appeared to spread into hiring as construction businesses cut jobs.

The Labor Department said employers added 92,000 jobs last month. It also revised down its estimates for job creation in each of the two prior months by a total of 8,000 -- to 126,000 in June from a previously reported 132,000 and to 188,000 in May instead of 190,000.

July's new-job total was the smallest for any month since February, when 90,000 were added. The consensus forecast of economists in a Reuters poll was for 130,000 jobs.

U.S. Treasury debt prices rose after the reports as investors bet they increased prospects for a near-term interest rate cut from the Federal Reserve, while stock prices fell.


However, some analysts said the July job numbers, while lower than many had expected, should not be taken as a sign the economy was at risk of a downturn.

It's moderately softer but it's not enough to change the overall trend of the economy, said Pierre Ellis, senior global economist with Decision Economics Inc. in New York. The start of the third quarter remains relatively healthy.

The 4.6 percent unemployment rate in July was the highest since a matching 4.6 percent in January. The last time the rate was higher was in August last year, when it reached 4.7 percent, department officials said.

Some 12,000 construction jobs were shed in July, but Commerce Secretary Carlos Gutierrez said in a telephone interview that he considered problems were being unwound in an orderly way.

I believe what we will be seeing is a continuing adjustment that we can manage through, Gutierrez said. Other sectors can pick up the slack. We have managed through hurricanes, 9/11 (the September 11, 2001 terror attacks) and stock market downturns, so we'll manage through this.

A top White House adviser similarly said continuing job growth was a sign of strength, not weakness. They indicate a strong and growing economy, Council of Economic Advisers Chairman Edward Lazear told reporters.

The lower job-creation number could be reassuring for policy-setting members of the U.S. central bank's Federal Open Market Committee, which meets next Tuesday. Some have expressed worry that labor markets were growing so tight that it might fan inflation.

The Fed is widely to keep its trend-setting federal funds rate at 5.25 percent, where it has been for more than a year.

In the first seven months of 2007, average job growth has eased to 136,000 per month from a more vigorous 189,000 throughout 2006.

All the July job growth came in service industries, which added 104,000 jobs, while goods-producing industries cut 12,000 positions. The government shed 28,000 jobs in July, the first time in more than a year and half that the government has cut hiring.