CHAMPAIGN, Ill. (AP) — Illinois' unemployment rate increased again in July with the loss of thousands of government and hospitality jobs, the state Department of Employment Security said Thursday.

The July unemployment rate hit 8.9 percent, up from 8.7 percent in June. It was the second straight monthly increase after nine months of steady drops.

But state officials pointed out that even with the increase unemployment remains significantly lower than the 10.1 percent rate of July 2011. They also noted that the state had 28,000 more jobs than it did a year earlier.

"When you look at the monthly data ... it leads someone to believe that things are worsening," said Greg Rivara, a spokesman for the Department of Employment Security. "And then when you look at the trend, there are 28,600 more jobs this July than last July."

Government employers in the state shed 7,900 jobs in July, 6,500 of them at schools on summer break, the department said. And employers in the state's leisure and hospitality sector cut a net 4,300 jobs for the month.

Even with the seasonal nature of the government cuts, department Director Jay Rowell said further government cuts are likely in the months ahead.

Given the struggles of state government, now wrestling with both a multibillion-dollar budget deficit and more than $80 billion in unfunded pension liabilities, that's no surprise, said Michael Brun, an economist at Illinois State University.

"It's pretty much what you'd expect because government has been cutting back," he said.

Harder to figure is the drop among leisure and hospitality employers. He and Department of Employment Security officials speculated that record heat in July had cut recreation and travel, but also cautioned no data yet exists to back that up.

An economist who closely tracks economic activity in the Midwest said Thursday in a regular report, though, that the drought that's settled in over Illinois and other Midwest states is starting to slow local economies. Creighton University economist Ernie Goss' Rural Mainstreet Index focuses on small towns. He said in his report that farm-dependent employers are starting to be affected.

Illinois' manufacturing sector provided the brightest spot in the state unemployment report, continuing a months-long trend

Manufacturers such as the state's auto plants and added a net 1,700 jobs in July and employ 22,400 more people than they did a year earlier, an increase of 3.9 percent.

Exports to growing overseas economies such as Brazil and China, Brun said, is providing strength that the domestic economy and others in the world can't right now

"We're getting more stimulus from abroad than we are from the United States," he said, adding that it isn't a given that either Brazil or China will remain strong buyers of products like contraction and transportation equipment Illinois companies export.

Other sectors adding jobs included professional and business services, where companies employed 2,800 more people than they did in June. The sector includes white-collar employers such as accounting and marketing companies as well as temporary-worker agencies that have been strong through the uneven recovery from recession.

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