WASHINGTON — It's the clearest sign yet the recession is finally ending: Employers laid off far fewer workers in July, the jobless rate dipped for the first time in 15 months and workers' hours and pay edged upward.
Those are the kind of figures that could give Americans the psychological boost necessary for recovery to take root after the worst recession since World War II.
A net total of 247,000 jobs were lost last month, the fewest in a year and a drastic improvement from the 443,000 that vanished in June.
The Labor Department's report Friday showed that the unemployment rate dropped a notch to 9.4 percent in July, from 9.5 percent the previous month. Together with slight increases in the average workweek and wages, the new figures suggested the economy is in a transition from recession to recovery.
"The worst may be behind us," President Barack Obama declared. "Today, we're pointed in the right direction."
Still, the job market remains shaky. A quarter-million lost jobs are a far cry from the employment growth needed to put the national economy on solid footing.
When the economy is healthy, employers need to add a net total of around 125,000 jobs a month just to keep the unemployment rate stable. And to push the jobless rate down to a more normal 5 percent range, it would take much stronger growth – at least 200,000 new jobs a month. Economists say it might take until 2013 to drive down the unemployment rate to 5 percent.
Yet the improvements in July could give some businesses the confidence to hire again – or at least not to lay off more workers. And consumers, less anxious about losing jobs, could respond by spending more freely.
"If people and companies think the worst is behind them – and it probably is – their confidence will be restored," said Richard Yamarone, economist at Argus Research. "That confidence can feed on itself."
On Wall Street, the report propelled stocks higher. The Dow Jones industrial average jumped 114 points, and other stock averages also gained.
Analysts had been forecasting bleaker employment figures: more job losses and an increase in the unemployment rate to 9.6 percent.
The White House said the president still expects the rate to hit 10 percent this year. So do many economists and the Federal Reserve.
Analysts say companies will keep cutting jobs probably through the rest of this year, though the pace of layoffs should continue to taper off. The beginnings of recovery could actually push the unemployment rate higher, since far more people would be energized to look for work again.
In fact, the main reason the unemployment rate declined last month was not an inspiring one: Hundreds of thousands of people, some discouraged by their failed job searches, left the labor force. The labor force includes only those who are either employed or are looking for work.
If laid-off workers who have given up looking for new jobs or have settled for part-time work are included the unemployment rate would have been 16.3 percent in July. All told, 14.5 million were out of work in July.
Job-seekers are finding it harder to get work because there are so few openings. A record 4.97 million people had been unemployed six months or longer in July. And the average length of unemployment grew to 25.1 weeks, also a record.
For those with jobs, the latest report was more heartening. With companies feeling a bit better about the economy's prospects and their own, employees got to work more hours and saw their paychecks grow.
The average work week rose to 33.1 hours, after having fallen to 33 hours in June, the lowest in records dating to 1964. That increase could signal new hiring later on because companies typically ask their existing staff to work longer hours before they decide to hire more people.
And employers bumped up wages. Average hourly earnings rose to $18.56 in July from $18.53 in June. Average weekly earnings rose to $614.34.
Those gains raised hopes that consumers, whose spending accounts for the single largest slice of economic activity, will spend more in the months ahead. In a cautionary note, the Federal Reserve reported Friday that consumers paid down credit cards and reduced other debt in June for the fifth straight month. For months, rising unemployment, declining home values and reduced stock portfolios have led Americans to spend less.
In July, the slowdown in layoffs reflected, in part, fewer job cuts in manufacturing, construction, professional and business services and financial activities. Those sectors had been pounded by the collapse of the housing market and the financial crisis.
There also were fewer layoffs in the temporary-help industry, which analysts watch for clues about future hiring. Retailers, though, cut more jobs in July. Those losses were blunted by job gains in government, education and health services, and in leisure and hospitality.
In another encouraging sign, revised job losses for May and June turned out to be less than previously reported.
The deepest job cuts of the recession came in January, when a net total of 741,000 job disappeared – the most in any month since 1949. Since the recession began in December 2007, the economy has lost 6.7 million jobs.
Still, some Fed officials think the jobless rate could rise as high as 10.6 percent by next year. The post-World War II high was 10.8 percent at the end of 1982.
An elevated unemployment rate could become a political liability for Obama when congressional elections are held next year. Ronald Reagan's GOP lost 26 House seats in the midterm elections in 1982.