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Updated from 9:32 a.m. ET

The U.S. economy created fewer jobs than Wall Street expected in October, likely quelling fears among some economists that tight labor markets could exacerbate signs of inflation that have cropped up in recent months.

Nonfarm payrolls

rose by 137,000 in October compared with September, the

Labor Department

said Friday, while the

unemployment rate

remained steady at a 30-year low of 3.9%, which it reached in April. This compares with an increase of 148,000 jobs in September, after adjusting for a strike at

Verizon Communications

and the layoff of temporary census workers. A separate report released Friday showed demand is still strong for U.S. manufactured goods despite a general slowdown in the economy.

Along racial lines, the job situation remained the strongest for adult white men, whose unemployment rate was a miniscule 2.5% in October. For African-Americans, meanwhile, the unemployment rate is 7%, more than double the 3.1% rate for the white population. Unemployment among Hispanic-Americans dipped to 4.9% from 5.5% in September.

The payroll figure was smaller than the 184,000 rise that a group of economists polled by

Reuters

expected. The unemployment rate was slightly lower than the consensus estimate of 4.0%.

The average monthly job gain dipped to 195,000 in October, to its lowest level since April 1996.

"The October employment report demonstrated that the economy has moderated, and that there are no signs of a drastic slowdown," said Gerald Cohen, senior economist at Merrill Lynch.

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Hourly wages, an indicator of inflation, rose 0.4% in October, and are up 3.8% year on year. This is slightly higher than the

Reuters

consensus of a 0.3% increase in hourly wages.

The report had been eagerly awaited by economists, who use the data to try to predict which way the

Federal Reserve

is leaning on interest rate policy. Specifically, if the report suggested robust job growth it would have raised the eyebrows of economists because of its inflation implications. When the unemployment rate is low, economic theory posits, workers are in a better position to demand wage increases that could lead to general price inflation.

But the pool of available workers, Fed Chairman Alan Greenspan's favorite measure of labor market tightness, rose 50,000 in October, said Cohen. "This report further supports our view that the Fed will remain on hold for the foreseeable future," he said.

In recent weeks, several economic reports, such as those tracking consumer and producer prices and unit labor costs, raised the specter of inflation.

The employment report, which is perhaps the most closely watched among the financial markets and economists because it gives both inflation and job growth signals, likely did not deviate enough from consensus estimates to set off alarms. Most economists, which expect the Federal Reserve to hold rates steady at its next meeting Nov. 15, are not likely to alter their stance based on Friday's news.

The Fed has raised rates six times in the last 17 months in an effort to engineer a slowdown of the economy, or the so-called "soft landing." It kept rates steady at its August and October meetings amid a plethora of data suggesting that the economy has cooled.

"This report of the employment situation in October is entirely consistent with a soft landing," said

Economy.com's

Michael Boldin, in his analysis of the report. "In fact, it is almost too perfect to be true from the Fed's perspective.

"We can be fairly confident that the Fed will not see a need to lower rates at their November 15 meeting, and probably not at the December meeting as well."

In the jobs report, employment in manufacturing was unchanged after 2 months of sharp declines. In the service industry, the largest sector of the economy, employment was little changed in October following two large increases. Job losses continued in the lumber, apparel and textile industries.

Meanwhile, despite evidence of slowing economy, new orders for U.S. manufactured goods remained strong in September, the

Commerce Department

said Friday.

Factory orders

increased 1.6% in September to a seasonally adjusted annual rate of $388.58 billion. This compares with a 2% jump in August to a $382.5 billion annual level.

September's figure was almost twice the

Reuters

consensus estimate of 0.9% increase.

Still, the U.S. manufacturing sector has slowed this year, as factory orders plunged a record 8.1% in July, and have not made up those losses in August and September.