The jobless rate climbed to 5.7 percent from 5.5 percent in June, its highest level since March 2004 -- although job losses for both May and June were smaller than previously reported, the report revealed.
The economy has lost a total of 463,000 jobs so far this year, according to media reports.
July's figures marked the seventh straight month where employers eliminated jobs. Still, payroll cuts weren't as deep as the 72,000 predicted by many economists, the Associated Press reported.
Workers' average hourly earnings rose to $18.06 in July, a 0.3 percent increase from the previous month. Those figures matched economists' predictions.
The increase in the unemployment rate came in part came as many 16-to-24-year-olds entered the labor market looking for summer jobs. The jobless rate for teenagers increased to 20.3 percent in July.
Employment continued to fall in construction, manufacturing, and service-providing industries, while health care and mining continued to add jobs, the report found.
"Overall the report looks to be broadly consistent with other data that show the economy quite soft, basically stalled, not growing very much, but not contracting very much either," David Resler, chief economist for Nomura Securities International in New York, told Reuters.
In total there were 8.8 million unemployed people in July, up from 7.1 million last year. The jobless rate last July stood at 4.7 percent.
Among the companies who announced job cuts in July was General Motors Corp., which also reported Friday a $15.5 billion loss in the second quarter as North American vehicle sales plummeted and the company faced expenses a sweeping restructuring plan.
The employment data comes on the heels of a U.S. Commerce Department report Thursday that found the country's gross domestic product rose just 1.9 percent in the second quarter despite government tax rebates aimed at boosting the economy. Economists had expected growth of 2.4 percent.