The White House suggested that the US economy had pulled back from the brink after a key labor report on Friday showed an unexpected fall in the level of unemployment.

The Labor Department's much-awaited monthly report confirmed improvement in the recession-gripped US economy, showing the unemployment rate fell to 9.4 percent in July as job losses narrowed to 247,000.

This was better than expected by private economists, who had forecast a loss of 325,000 jobs and a jobless rate rising to 9.6 percent from the June level of 9.5 percent.

President Barack Obama's administration, which has been fighting off Republican accusations that its expensive fiscal stimulus plan is failing, welcomed the news as a sign the economy was turning the corner.

"It is more evidence that we have pulled back from the edge and away from the brink of a depression," said White House spokesman Robert Gibbs.

Experts agreed the figures, which showed the number of unemployed had fallen slightly to 14,462 million from 14,729 million in June, represented a marked improvement in the critical labor market.

The report "confirms that the recession is certainly diminishing in intensity if it hasn't ended already," said Peter Kretzmer, senior economist at Bank of America.

"It appears unemployment may have hit its peak. We are starting to see the signs of a turning point, but it will take some time for job losses to diminish."

Robert Brusca at FAO Economics said the date meant the recovery in the US economy appeared at hand.

"The jobs turnaround is actually about as rapid as you could hope to see," he said. "The transition from job losses to gains could come as soon as August."

US stocks surged on the news with the three main indexes all up more than 1.5 percent in morning trade.

The Labor Department also revised down the number of job losses for May to 303,000 from 322,000 and for June to 443,000 from 467,000.

Since the recession began in December 2007, payroll employment has fallen by 6.7 million, according to the agency.

The drop in unemployment even as job losses were rising is the result of two separate surveys, one of individuals and the other of employers.

Eugenio Aleman, senior economist at Wells Fargo, said the data also reflected some discouraged workers leaving the labor force and warned that unemployment could hit as high as 10 percent even with an improving economy.

"I was surprised about the unemployment number coming down to 9.4 percent, but that was because of people dropping out of the labor force, so that is probably not going to be repeated in the future," Aleman said.

He argued that the jobless rate will likely rise in the coming months "because all those people who have been out of the labor force are going to come in because of better job prospects," with some of these counted as unemployed.

The report showed that in July, the labor force fell by 422,000.

Job losses remained widespread but were not as deep as in prior months -- about half the average decline for November through April of 645,000 per month.

The goods-producing sector lost 128,000 jobs, including 52,000 in manufacturing. But the agency estimated the auto sector added 28,000 jobs due to recalls from extensive plant shutdowns earlier this year.

The services sector shed 119,000 jobs including 44,000 in retail.

Sectors adding jobs were education and health care (17,000); leisure and hospitality (9,000); and government (7,000).

The average workweek of production and nonsupervisory workers in the private sector, sometimes seen as a proxy for economic activity, edged up by 0.1 hour to 33.1 hours. The manufacturing workweek increased by 0.3 hour to 39.8 hours.

On the negative side, the number of people unemployed for 27 weeks or more rose by 584,000 over the month to 5.0 million.

Last week, the government estimated that the US economy contracted 1.0 percent in the second quarter, better than forecasters had expected.

The report showed an easing of the horrific slump and lent credence to predictions that the world's biggest economy was close to emerging from a recession that began in December 2007.

That came after a 6.4 percent contraction in the first quarter and a drop of 5.4 percent in the fourth quarter of 2008.