Today’s U.S. Employment Report came in a bit stronger than most economists expected, but it wasn’t enough to soothe worries about the U.S. economy.

July non-farm payrolls dropped by 42,000, a little lower than the consensus expectation of 55,000. June’s numbers were revised downward, too, strengthening the headline result.

Manufacturing lost another 49,000 jobs last month, although this was the smallest decline in the sector since December 2000. “The worst news in the report was the loss of 23,000 private-sector services jobs,” says BMO Nesbitt Burns, “which shows the knock-on effects from the factory slowdown to the broader economy.”

“On a more surprising note, joblessness held steady at 4.5%, against last year’s low of 3.9%, rather than rising to 4.7% as we and the consensus had anticipated given the sizable drop-off in labour force participation reported the previous month,” observes CIBC World Markets. “Although the unemployment rate is still likely heading to 5%, the latest data suggest it may take longer reaching that ultimate destination.”

Wage pressures were not an issue in this report, up just 0.3%, and in line with expectations.

“With little suggestion of an imminent improvement in the bleak capital spending outlook and exports sandbagged by eroding export markets, a loss of momentum by the consumer arguably represents the greatest risk for the economy in the second half of the year,” argues CIBC.

“While today’s report was not quite as soft as expected in some respects, there is nothing to suggest improvement in what presently is households’ principal Achilles heel — eroding job prospects.”

Both CIBC and BMO agree that the report suggests a 25 basis point cut at the U.S. Federal Reserve Board’s next rate meeting on August 21.

“At best, the non-farm payrolls report supports the view that job losses may be bottoming, although the decline in services jobs is a worrying sign. As a result, we still see the Federal Reserve cutting interest rates by 25 basis points on August 21, with the possibility of further rate cuts in the fall,” says BMO.