WASHINGTON (AP) — U.S. employers added 162,000 jobs in July, amodest increase and the fewest since March. Still, the unemploymentrate fell to a 4½-year low of 7.4 percent, a hopeful sign in anotherwise lackluster report.

Unemployment declined from 7.6 percent in June because moreAmericans found jobs, and others stopped looking and were no longercounted as unemployed.

Still, Friday's report from the Commerce Department pointed to aless-than-robust job market. It suggested that the economy's subpargrowth and modest consumer spending are making many businessescautious about hiring.

Employers created a combined 26,000 fewer jobs in May and Junethan previously estimated. Americans worked fewer hours in July,and their average pay dipped. And many of the jobs employers addedin July were for lower-paying work at stores, bars andrestaurants.

For the year, job growth remains steady. The economy has createdan average 200,000 jobs a month since January, though the pace hasslowed in the past three months to 175,000.

Friday's jobs report "reveals a mixed labor market picture ofcontinued improvement, but at a still frustratingly slow pace,"said Scott Anderson, chief economist at Bank of the West.

Reaction in financial markets was slightly negative. The DowJones industrial average dropped 60 points in midmorning trading,and broader stock indexes also declined. The yield on the 10-yearTreasury note fell to 2.62 percent from 2.71 percent.

The Federal Reserve will review the July employment data indeciding whether to slow its $85 billion a month in bond purchasesin September, as many economists have predicted it will do.

Weaker hiring could make the Fed hold off on any pullback inbond buying, which has helped keep long-term borrowing costs down.Yet it's possible that the lower unemployment, along with the jobgains the past year, will convince the Fed that the job market isstrengthening consistently.

"While July itself was a bit disappointing, the Fed will belooking at the cumulative improvement," said Paul Ashworth, chiefU.S. economist at Capital Economics. "On that score, theunemployment rate has fallen from 8.1 percent last August, to 7.4percent this July, which is a significant improvement."

But Beth Ann Bovino, senior economist at Standard & Poor's,said she thinks Friday's report will make the Fed delay anyslowdown in its bond purchases.

"September seems very unlikely now," she says. "I'm wondering ifDecember is still in the cards."

The government's revised totals show that May's job growth wasdowngraded to 176,000, below the 195,000 previously estimated.June's was lowered to 188,000, from the 195,000 reported lastmonth.

July's decline in unemployment to 7.4 percent was derived from asurvey of households, which found that 227,000 more people saidthey were employed. And 37,000 people stopped looking for work andwere no longer counted as unemployed.

The job gain for the month was calculated from a separate surveyof employers.

Though much of July's job growth was in lower-paying industries,manufacturing, a generally good-paying sector, added 6,000 jobs.That growth was driven by gains at auto plants. Those were thefirst job gains at U.S. factories since February.

Jobs in professional services such as finance, accounting andinformation technology also rose.

Governments added jobs for the first time since April, driven bythe fifth straight month of hiring by local government.

Job gains are being slowed by the economy's tepid growth. Itgrew at an annual rate of just 1.7 percent in the April-Junequarter, the government said this week. That was an improvementover the previous two quarters, but it's still far too weak torapidly lower unemployment.

Recent data suggest that the economy could strengthen in thesecond half of the year. A survey Thursday showed that factoriesincreased production and received a surge of new orders in July,propelling the fastest expansion in more than two years.

The survey, by the Institute for Supply Management, also showedthat the housing recovery is spurring more output by lumbercompanies, furniture makers and appliance manufacturers.

Businesses have ordered more industrial machinery and otherequipment for four straight months. Europe's troubled economies areshowing signs of recovery, potentially a lift to U.S. exports.

U.S. automakers are reporting their best sales since therecession, a sign that Americans are confident enough in theirfinances to make large purchases. Car sales rose 14 percent in Julyfrom 12 months earlier to 1.3 million.

Healthy sales have encouraged more hiring by Ford Motor Co. Thecompany said last week that it will hire 800 salaried professionalsthis year, mostly in areas such as information technology, productdevelopment and quality control.