The widely watched U.S. Labor Department employment report for June disappointed expectations, showing a decline of 125,000 payroll jobs, but it also showed that the unemployment rate edged down to 9.5%.

“The decline in payroll employment reflected a decrease of 225,000 in the number of temporary employees working on Census 2010. Private-sector payroll employment edged up by 83,000,” the U.S. Bureau of Labor Statistics said in its report released on Friday, July 2.

Analysts had expected jobs to rise by about 110,000, and the consensus call was for the unemployment rate to rise to 9.8%.

The Census layoffs led to the first nationwide jobs cut in six months even with the addition of 83,000 private-sector jobs. At the same time, the seemingly good news of a 9.5% unemployment rate reported for June–its lowest level in almost a year–reflects the fact that there were 1.2 million discouraged workers in June, up by 414,000 from a year earlier. Job seekers who stop searching are no longer counted in the Labor Department’s monthly unemployment figures.

“This is the economy we have, not the one we want,” said Steve Blitz, a senior economist with New York-based Majestic Research, in an analyst note. “The one we want would be well along adding enough jobs to take in new entrants to the workforce and begin to cut into unemployment. Adding 83,000 private sector jobs, of which 20,500 are temporary positions, and losing 10,000 state and local government positions, is not the stuff of robust recovery, but it also isn’t the makings of a double dip [recession].”

Blitz found the jobs report’s drop in workweek hours worrisome, but he found the diffusion index most troubling. “The percent of firms hiring plus one-half of those neither hiring nor firing dropped to 52.2% from 54.8% last month and 68% in April,” he noted.

Jefferies & Co.’s chief financial economist, Ward McCarthy, said the overall payroll data came in as expected.

“Overall, this is disappointing data relative to expectations and employment releases in March and April, which created the perception that the labor market was entering a stage of the cycle where it would generate momentum and significant job growth,” McCarthy wrote in a comment on the jobs report. “The timing of the inflection point in the labor market in May…suggests that the European crisis and associated financial market distress has caused both employers and labor market participants to be more cautious.

Within professional and business services, employment continued to increase in temporary help services, up 21,000, according to the Bureau of Labor Statistics. Employment in temporary help has risen by 379,000 since a recent low in September 2009.

Read a story about May’s jobs report from the archives of InvestmentAdvisor.com.