Unemployment down, but fewer people working?

How can this be?
And why wouldn't the government consider that number of people who have given up looking for jobs?
From CNBC:

According to a Bureau of Labor Statistics breakdown, there were 139,296,000 people working in July, compared to 139,334,000 the month before, or a drop of 38,000.

But the job creation number was positive and the unemployment rate went down, right? So how does that work?

It’s a product of something the government calls “discouraged workers,” or those who were unemployed but not out looking for work during the reporting period.

This is where the numbers showed a really big spike—up from 982,000 to 1.119 million, a difference of 137,000 or a 14 percent increase. These folks are generally not included in the government’s various job measures.

  The rest of the article explains exactly how this works.
  This isn't the whole iffy statistic spouted by the government.
  Last week the unemployment rates were revised UP from 398,000 to 401,000, belatedly.
  From Zero Hedge:

As we predicted last week when we reported that the surprise 398K claims beat was "quite amusing as next week's upward revision will mean the 400k+ streak will continue", we were again correct: today's print of 400K (which will be revised to 404K or so next week) allegedly beat expectations modestly, but the kicker is that last week's 398K was pushed up to 401K, meaning that the unbroken streak of 400K+ prints is now at 18 weeks. Welcome to the depression. 

  So we'll have to see if the long awaited numbers for today will be revised up next week when no one's watching.