The Labor Department reported a net loss of 51,000 jobs in the month. Economists surveyed by Briefing.com had been forecasting a loss of 75,000 jobs in the latest report.
The latest report brought job losses this year to 463,000. The June job loss number was revised to 51,000.
The unemployment rate rose to 5.7% from a 5.5% reading in June. It was the worst reading since March 2004, and slightly worse than economists' forecast of a 5.6% rate.
The rate has now jumped a full percentage point from a year ago.
But the 5.7% unemployment rate tells only part of the problem facing job seekers. It doesn't include those who have become discouraged from looking for work, or those who have accepted part-time jobs when they want to be working full time.
Counting the unemployed or underemployed, the rate rises to 10.3%, the first time that measure has hit double figures since November 2003.
Those who are out of work are also taking longer to find new jobs. There are now 1.7 million people out of work for six months or more, which is up 6% from a month early and is 28% above year-ago levels. Nearly one in five people counted as unemployed have now been out of work for six months or more.
"It is becoming increasingly hard for Americans to find work in this economy," Sen. Charles Schumer, D-N.Y., said in a statement. "As the construction, manufacturing, and now retail sectors are reeling from job losses, too many workers are being forced to reduce their hours and take part-time jobs just to make ends meet."
Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment firm, said there's few signs of a turnaround in the labor market on the horizon.
"I think we're going to see more of the same for at least another quarter, and it could be the rest of the year," he said.
The job losses also show spreading weakness in the labor market.
Construction lost 22,000 jobs as housing continued to suffer, while manufacturing employment plunged 35,000 jobs, as automakers cut production in the face of weak sales.
But the job losses were spread far beyond the battered construction and auto industries. Retailers cut 17,000 jobs, while business and professional services lost 24,000 positions.
Problems in housing and credit markets continued to hit the job base as commercial banks, Wall Street firms and real estate firms cut more than 4,000 between them.
But there were a number of service sector employers outside of finance and real estate that saw problems as well. Publishing lost 3,400 jobs, due to continued problems at newspapers and magazine. Airlines also cut 900 jobs.
Even with gains in health care and a narrow increase in leisure and hospitality employers, service sector companies cut a total of 30,000 jobs. And the service sector is the broad area of the economy that provides more than 80% of the non-government jobs.
Government employers added 25,000 jobs to mitigate the losses in the private sector. But Gilliam said that's not necessarily a positive for the economy.
"It's good to have the government adding jobs in the short term, but that's not an long-term solution either," he said.
In another sign of weakness, the average hourly work week fell 0.1 hour to 33.6 hours. The average hourly wage edged up 6 cents to $18.06, bringing salaries up 3.4% over the year-ago levels. That's well below the 5% rise in overall prices paid by consumers over the 12 months ending in June, meaning that paychecks are not keeping up with costs.
Both presidential candidates cited the weak jobs report as an argument for their economic proposals.
Democratic presidential candidate Barack Obama called for another economic stimulus package, on top of the one passed earlier this year that sent $600 checks to single taxpayers and $1,200 to married taxpayers in order to help support spending.
Obama called for $1,000 "energy rebates" that would go out this fall, as well as a $50 billion in public works projects and help to state governments. He criticized his the proposal of his opponent, John McCain, to eliminate the gasoline tax.
"If we want to create jobs, we should do more to make work pay for ordinary Americans, not boost the profits of oil companies," he said. "It's time to restore fairness and balance to our economy and we can start by passing the emergency economic plan that I'm proposing today."
McCain issued a statement saying a jobs plan must help small businesses.
"Unlike Senator Obama, I do not believe that raising taxes is the answer to our economic problems," he said. "There is no surer way to force jobs overseas than to raise taxes on businesses. The American people cannot afford economic policies that will take us backward."
