Employers unexpectedly cut 44,000 jobs in July, demolishing forecasts of a modest increase in employment and bringing six months of uninterrupted losses to 486,000, the Labor Department said.

The unemployment rate managed to creep down from 6.4 per cent in June, but only because the total labor force -- those in a job or actively looking for one -- contracted by 556,000 people.

"Bottom line: the economic train has left the station without its workers," said BMO Financial Group economist Sal Guatieri.

Factory workers took the brunt of the blow, with manufacturing jobs slumping by 71,000 as many car factories shut down for the summer to re-equip assembly lines for new car models.

"It is a big disappointment," Guatieri said.

"The manufacturing sector is devastated. It's still shedding jobs at a rapid pace, reflecting several factors: overall weakness in the economy, an overvalued US dollar and probably some restructuring, with jobs shifting to lower-cost overseas nations."