US economy creates 163,000 jobs, shielding Obama

The Labor Department said unemployment rose 0.1 points to 8.3 percent, in a monthly report that was nevertheless heralded as evidence that the world's largest economy is still on track.

Economists had predicted a much more modest creation of 100,000 jobs during July, after a weak increase of 64,000 in June.

"Finally, we have some good news on the employment front," said Nigel Gault, an economist with IHS Global Insight. "The report will alleviate fears that the US might be tipping back into recession."

The service, manufacturing and food and drink sectors were among those showing gains, as the economy created more jobs than at any time since February.

Markets reacted positively, with the Dow Jones Industrial Average surging 1.7 percent or 217 points while the government's cost of borrowing fell.

Oil prices soared more than $4 a barrel on the prospect of stronger demand in the world's largest market for crude.

With fewer than 100 days to go until the US presidential election, White House contenders seized on the report's seemingly mixed message in order to shape the tone of the debate.

Republican Mitt Romney zeroed in on the politically symbolic unemployment rate, now the highest since February.

"Today's increase in the unemployment rate is a hammer blow to struggling middle-class families," Romney said in a statement, as he pledged to create 12 million jobs in his first term.

"We've now gone 42 consecutive months with the unemployment rate above eight percent. Middle-class Americans deserve better, and I believe America can do better."

However, Obama's top economic adviser Alan Krueger echoed the Labor Department's observation that the unemployment rate was "essentially unchanged."

"The rate rose from 8.217 percent in June to 8.254 percent in July," he said, well within the report's margin of error.

The unemployment rate and the job creation figures are taken from two separate Labor Department surveys released simultaneously.

The jobless rate is the result of a survey of 60,000 households, while the payrolls increase comes from a poll of 140,000 businesses and government agencies.

The mixed picture provided by the two surveys may make it difficult for Romney to steer the debate back onto the economy and away from issues that have seen him drop in the polls.

Over the past month, Romney has faced criticism for not releasing more tax returns, as well as for diplomatic missteps, his dealings at Bain Capital and his tax plan -- which independent analysts said would raise rates for the middle class.

As a result, Obama has opened up a two-point lead in national tracking polls in key swing states like Florida, Ohio and Pennsylvania, leaving Romney with plenty to do if the election is not to slip through his fingers.

Obama reacted soberly to the report, saying more work was needed to climb out of the deepest crisis since the 1930s.

"We have still got too many folks out there who are looking for work, we have got more work to do on their behalf," the president said as he again bashed Republican tax plans.

Democrats will also take hope from the fact that unemployment among Hispanics fell 0.7 points to 10.3 percent and the rate for adult women stood at a relatively low 7.5 percent -- both groups are crucial for Obama to win the election.

Friday's data is unlikely to be instrumental in deciding whether the Federal Reserve embarks on a new round of stimulus spending.

Before the Fed meets in September, policymakers will receive August's jobs report.