WASHINGTON - US employers slowed their pace of hiring in July but the jobless rate fell anyway, a pair of mixed signals that could make the U.S. Federal Reserve more cautious about drawing down its huge economic stimulus program.

The number of jobs outside the farming sector increased by 162,000 last month, the smallest gain in four months and below analysts’ expectations, Labour Department data showed on Friday. The lacklustre reading reinforces the view that the job market is only inching toward recovery from the 2007-09 recession, with the broader economy stuck in low gear. “We’re sort of grinding along here,” said Gordon Charlop, managing director at Rosenblatt Securities in New York.

At the same time, gains in employment were enough to push the jobless rate down to 7.4 percent, its lowest level since December 2008.

However, the report bore many details that cast the jobless rate’s decline in a poor light, and raised doubts over whether the economy has improved enough for the Fed to begin reducing bond purchases at its next meeting in September. For one, part of the drop in the jobless rate was due to a decline in the size of the U.S. workforce, which only includes people who have jobs or are looking for work. The workforce can shrink when more workers retire or go to school, but it also contracts when people give up the job hunt.

Also robbing some of the report’s lustre, Americans on average worked shorter work weeks in July, while hourly wages fell. That bodes poorly for future consumer spending, the engine of the U.S. economy. The government also said 26,000 fewer jobs were created in May and June than previously estimated. The darker side of the report gave direction to Wall Street.

Yields on U.S. government debt fell sharply, suggesting investors were less confident the Fed could soon begin easing its bond purchases, which are aimed at spurring employment. U.S. stocks also slipped. “Look for some soul searching by those who thought and acted as if reducing long-term asset purchases (by the Fed) next month was a done deal,” said Marc Chandler, a currency strategist at Brown Brothers Harriman in New York.

The U.S. central bank currently buys $85 billion a month in bonds to keep borrowing costs low, and the stimulus program has helped the country’s beleaguered housing market and boosted car sales. Fed Chairman Ben Bernanke said last month the U.S. central bank would likely reduce the level of monthly purchases by the end of the year, and end them by mid-2014. The Fed’s policymaking committee wrapped up a two-day meeting on Wednesday without any change to the program.

Other data on Friday showed a slight gathering of inflationary pressure, with the 12-month reading of the Commerce Department’s gauge of core inflation rising to 1.2 percent in June from 1.1 percent a month earlier. That could allay some concerns at the Fed that low inflation poses a risk to the economy.

Some analysts noted that while the labor market appears far from healthy, July still marked another month of slow-but-steady improvement.

“While July itself was a bit disappointing, the Fed will be looking at the cumulative improvement,” said Paul Ashworth, an economist at Capital Economics in Toronto. The Fed was still on track to trim its stimulus efforts in September, he said.

Beyond the report’s implications for policy, a deeper question is whether the pace of job creation can be sustained given a long stretch of weak economic growth. Gross domestic product, a measure of the nation’s economic output, grew at a mere 1.4 percent annual rate in the first half of the year, down from 2.5 percent in the same period of 2012.

Most economists expect GDP will accelerate in the second half of this year, which would make it more plausible for the current hiring trend to continue.

But the fact that the jobless rate has fallen steadily despite weak output might point to a frightening possibility: perhaps the U.S. economy’s growth potential has fallen. This would mean less output is needed to create jobs, but that incomes would grow at a slower pace over the long run. The prospect of such a structural shift worries economists and investors.

Friday’s report could fan those concerns. The average work week declined to 34.4 hours in July, while average hourly earnings slipped 0.1 percent.

The report also showed 5.7 percent of Americans who had jobs in July could not get enough hours to qualify as full-time workers, the same percentage as in June.

While the unemployment rate has fallen by eight tenths of a point over the last year, the share of part-time workers who want more hours has barely dropped.

Also, the number of long-term unemployed, while falling, remains historically high. Bernanke has warned this situation could deal lasting damage to the economy’s growth potential.

That is because people out of work for extended periods might never work again. In July, 4.25 million Americans had been unemployed for at least six months. “The labor market remains stuck in quicksand,” said Todd Schoenberger, managing partner at LandColt Capital in New York.