The figures were better than feared, but still depressing for those affected
The US economy lost 247,000 jobs in July, far fewer than analysts had expected, official figures show.
With fewer workers being laid off, the unemployment rate fell to 9.4%, down from 9.5% in the previous month, the first drop since April 2008.
The unexpected drop is likely to fuel hopes that an economic recovery is gaining ground.
US President Barack Obama said the jobless numbers showed that "the worst [of the recession] may be behind us".
"[But] we have a lot further to go. As far as I'm concerned, we will not have a true recovery until we stop losing jobs," he added, echoing comments made last week.
Since the recession began in December 2007, about 6.7 million jobs have been lost, the Department of Labour said.
Caroline Hepker, BBC business correspondent, New York
As the US recession enters its 20th month, the grand old library in New York is offering help for the growing numbers of Americans out of work.
Debra Edwards says the facilities at the library have been helpful in her job search, but she has not yet found the office job she wants.
Rodneyse Bichotte describes herself as a "go-getter". She was laid off from banking giant JP Morgan Chase and has been out of work for a year:
"The toughest part is competing with everybody else. When I look into different industries, like media or a non-profit, they look at my resume and see financial services. I have to point out how [my skills] are transferable."
Ms Bichotte is worried about the summer lull when employers go on holiday but she is confident of finding work.
But most economists, and even US Treasury Secretary Timothy Geithner, do not expect unemployment to peak until the second half of 2010.
The president also stressed that economic meltdown had been avoided.
"We are losing jobs at less than half the rate we were when I took office. We have pulled the financial system back from the brink.
"While we have rescued our economy from catastrophe, we have also begun to build a new foundation for growth."
Analysts had expected non-farm payrolls to drop by 320,000 in July and the unemployment rate to rise to 9.6%.
Official figures showed job losses for July were spread across all sectors, though just 52,000 jobs were lost in manufacturing, the first time since September that manufacturing losses were fewer than 100,000.
Jobs continued to be added in the education and health services, with 17,000 more posts for the sector during the month.
The construction industry saw 76,000 fewer jobs for July, though the drop was less than predicted.
Analysts attributed the lower rate of contraction to the government's stimulus package, which helped boost infrastructure schemes.
Revised data also showed fewer jobs were lost in June and May than had been thought. Employers cut 303,000 positions in May, less than the 322,000 previously estimated. And in June 443,000 jobs were cut, revised from an earlier figure of 467,000.
"Because layoffs in auto manufacturing already had been so large, fewer workers than usual were laid off for seasonal shutdowns in July," Labour Commissioner Keith Hall said.
The average working week rose to 33.1 hours in July from June's level of 33 hours. In the manufacturing sector, the average working week climbed to 39.8 hours from 39.5 hours in the month before.
Average hourly earnings rose to $18.56 in July, up from $18.53 in June.