U.S. employers slowed their pace of hiring in July but the jobless rate fell anyway, 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, the Labor Department said on Friday.

That was below the median forecast in a Reuters poll of 184,000. Compounding that miss, the government also cut its previous estimates for hiring in May and June.

At the same time, the jobless rate fell two tenths of a point to 7.4 percent, its lowest since December 2008. Gains in employment fueled some of that decline, but the labor force also shrank during the month, robbing some of the luster from the decline in the unemployment rate.

The data reinforces the view that the job market is inching toward recovery, with the broader economy still stuck in low gear.

"We're sort of grinding along here," said Gordon Charlop, managing director at Rosenblatt Securities in New York.

The question is whether the pace of job gains is enough for the Fed to feel the U.S. economy is ready to get by with less support. The U.S. central bank currently buys $85 billion a month in bonds to keep borrowing costs low.

The growth in payrolls left the three-month average gain at 175,000, and investor reactions were mixed to the payrolls data.

Yields on U.S. government debt fell, suggesting investors were less confident the Fed could soon begin easing its bond purchases. Traders of short-term U.S. interest-rate futures boosted bets that the Fed would wait until 2015 before raising short-term borrowing costs.

At the same time, futures for U.S. stocks were mostly flat, with the S&P index moving between slight gains and losses while Dow and Nasdaq futures were modestly higher.

The Fed's stimulus program has lowered interest rates, spurring growth in the country's beleaguered housing market and boosting 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. The panel's statement, however, referenced new factors that could be seen as risks to growth: a recent rise in mortgage rates and persistently low inflation. Central bank policymakers next meet in September.

STRUCTURAL CONCERNS

Other data on Friday showed a slight gathering of inflationary pressures, 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.

But the jobs report will entertain darker views on the economy.

For one, analysts wonder if the pace of job creation can be sustained given slower-than-expected 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 job creation has been relatively robust despite weak output might point to a frightening possibility: perhaps the 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 showed the average work week declined to 34.4 hours, while average earnings slipped 0.1 percent.

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

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 workers 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.