The rise in the unemployment rate to 5.7 per cent from 5.5 per cent came in June when many young people enter the labour market looking for summer jobs.
But this year, fewer of them were able to find work, the government said.
The unemployment rate for teenagers jumped to 20.3 per cent, the highest since late 1992.
Company job cuts
General Motors (GM) filed a report on Friday showing the third-worst quarterly loss in its history in the second quarter as north American vehicle sales plummeted and the company faced expenses due to labour unrest and its restructuring plan.
The company said it would lose thousands of hourly and salaried workers, speed the closure of lorry and four-wheel-drive vehicle plants, suspending its dividend and raising cash through borrowing and the sale of assets.
GM also said it would reduce production by another 300,000 vehicles, and that could prompt another wave of blue-collar early retirement and buyout offers.
More than 700 Bennigan's restaurants, owned by privately held Metromedia Restaurant Group, are closing, driving more people to unemployment lines.
Chrysler LLC, GM, Wachovia, Cox Enterprises and Pfizer also announced job cuts in July.
A fallout from the housing slump and high energy prices also are weighing on employers.
More job cuts
Job losses have further hit the housing, credit and financial debacles.
Manufacturers cut 35,000 positions, construction companies got rid of 22,000 and retailers shed 17,000 jobs.
Meanwhile, spending on construction projects around the country dropped 0.4 per cent in June as cutbacks in home building eclipsed gains in commercial construction, the US commerce department said.
The Institute for Supply Management's reading of activity from the country's producers of cars, aircraft, appliances and other manufactured goods hit 50, down from 50.2 in June. Readings above 50 signal growth.
Temporary help firms, also viewed as a barometer of demand for future hiring, eliminated 29,000 jobs. Those losses swamped job gains elsewhere, including in the government, education and health care.
In May and June combined, the economy lost 98,000 jobs, according to revised figures. That was not as bad as the 124,000 reductions previously reported.