The U.S. workforce expanded in September after two months of a decline in the number of jobs created, all but eliminating the possibility that the

Federal Reserve

will slash interest rates in the coming months.

Nonfarm payrolls

rose 252,000 in September, the

Labor Department

reported Friday, pushing the

unemployment rate

down to 3.9%, matching a 30-year low it hit in

April.

Both figures came as a surprise to Wall Street. The consensus among economists polled by

Reuters

was for the September employment data to show the creation of 232,000 new jobs and an unemployment rate of 4.1%, unchanged from

August.

Bruce Steinberg, chief economist at

Merrill Lynch

, said the report "demonstrates healthy but non-excessive growth."

"The U.S. economy has moderated but shows no sign of a drastic slowdown," Steinberg said.

Steinberg said the dip in the unemployment rate was misleading because it resulted from a shrinkage in the labor force. "The unemployment rate will probably rise back to 4% or so next month when the labor force will probably resume growing," he said.

Core job growth was 204,000, the

Bureau of Labor Statistics

said, explaining that the total figure included 75,000 jobs that reappeared in September following the strike against

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in August, and 27,000 jobs that disappeared as the

Census Bureau

completed its work on the nation's headcount.

The threat of inflation from rising wages remained subdued in September, despite a tighter labor market as measured by the unemployment rate. This shows that employers did not have to offer outsized incentives to attract and retain workers. Average hourly earnings rose 3 cents, or 0.2%, to $13.83 an hour. Economists expected a 0.3% rise in hourly wages.

The government said nonfarm payrolls in August fell 105,000, the lowest monthly drop since April 1991.

Friday's jobs data -- perhaps the most watched economic indicator by policymakers -- indicate that unemployment remains at historical lows without raising a serious threat of inflation. The data contrast with other recent numbers that show that the economy has slowed, the result of several interest rate hikes by the Federal Reserve that began in June 1999. At its most recent meetings -- on Aug. 22 and Oct. 3 -- the Fed's

Federal Open Market Committee

, the body that sets interest rates, kept borrowing costs steady amid a flurry of economic data that suggested a cooling economy.

The slowdown has raised talk among market forecasters that the Fed's next move will be to lower rates.

"The report does not change the view that the Fed is on hold for now, but the drop in unemployment would certainly make an easing more difficult to defend," said James O'Sullivan, economist at

J.P. Morgan

, who predicted that the Fed will raise rates again by the middle of next year.

The manufacturing sector, in particular, has slowed considerably and inflation appears benign, despite high oil prices. Factory orders, a key gauge of the health of the manufacturing sector,

rose slightly in August, although not enough to make economists forget a record decline in July, the

Commerce Department

reported Oct. 4.

The housing sector has also been soft, with sales of newly constructed homes falling 3% in August compared with July, the government

said Tuesday.

In a statement after the Oct. 3 meeting the

Fed indicated that it would remain alert to signs of inflation, particularly if producers begin raising prices to compensate for high energy costs.