The story that the October employment report, due out Friday at 8:30 a.m. EST, will tell may hinge on the answers to a couple of key questions, economists say.

The first question: Are recent signs of weakness in retail sales going to make retailers reluctant to bulk up their payrolls for the holidays? The second: Is the manufacturing sector going to deteriorate further, or has it already seen the worst?

On average, economists expect the October jobs report to show that economic growth is continuing to slow.

For example, they expect the report's main feature -- the change in the number of people on nonfarm payrolls from September to October -- to be relatively small, at 184,000. From October 1999 to September 2000, nonfarm payrolls grew by an average of 209,000 a month.

And, they expect the unemployment rate -- another component of the jobs report -- to ease off the 30-year low of 3.9% it reached in September, to 4%, on average. That will happen if the number of potential workers increases more than the number of people with jobs.

The report's third major component, average hourly earnings, is seen rising 0.3%, just as it did in each of the previous 12 months, on average. In a more rapidly growing economy, strong demand for workers might prompt employers to offer even higher wages and salaries in order to attract and retain employees.

People who expect that the slowdown deepened in October argue that because interest rate hikes by the

Fed do not take effect immediately, but with a six- to nine-month lag, the half-point interest rate hike the Fed engineered in May is only just starting to take its toll on economic activity. That rate hike, the sixth in a series, was the first larger-than-25-basis-points move the Fed had made since 1995.

"I think the Fed is too tight and the economy is therefore slowing," said Brian Wesbury, chief economist at

Griffin Kubik Stephens & Thompson

in Chicago. Adjusted for the core rate of inflation, which as measured by the

Consumer Price Index

currently stands at 2.6%, the

fed funds rate is the highest it's been since 1989, right before the onset of the last recession, Wesbury points out.

That might not matter much to the high-tech sector of the economy, but it's of grave importance to the rest, Wesbury says. "We have a very divided economy," he says. "High-tech is growing very fast, but the rest of the economy isn't." Wesbury thinks nonfarm payrolls added 145,000 new jobs in October, and that the unemployment rate rose to 4.1%.

To some extent, job growth can be expected to slow simply because with the unemployment rate so low, the pool of available workers is small. Employers might not be able to hire all the people they'd like to.

Even so, retail and manufacturing will be two key areas of weakness in the October jobs report, Wesbury and others say.

Stores normally begin hiring extra workers for the holidays in October and probably did again this year, only not as aggressively, they say.

Retail hiring may be weak because retailers, chastened by the weekly retail sales surveys for October, are bracing for a slow holiday season. As measured by the

Redbook Retail Average

, October sales outpaced September by just 0.2%, compared to a target of 0.7%.

As a result of the recent weakness in retail sales, "stores are becoming more conservative," says Carol Stone, deputy chief economist at

Nomura Securities

. Her forecast is for 130,000 new nonfarm jobs and an unemployment rate of 4.0%.

Manufacturing employment will suffer, some economists say, because manufacturing indicators have been persistently weak. In the latest example of this, the

Purchasing Managers' Index

fell more than expected to 48.3 in October, the lowest reading in nearly two years, from 49.9 in September. It was the third sub-50 reading in a row, where sub-50 readings signify that the sector is contracting rather than growing.

On the other hand, there are reasons to expect a strong rebound in hiring across the board in October,

Argus Research

economist Richard Yamarone says.

Overall, the economy is still strong, he says. The 2.7% third-quarter growth rate of

gross domestic product

reported last week is "downright impressive" considering that it comes during the 10th year of an expansion.

There's been no let-up in demand for workers, so payrolls will see another month of strong growth, Yamarone predicts. He's forecasting a gain of 270,000 nonfarm jobs, and that the unemployment rate will stay at 3.9%.

Holiday sales forecasts are far too bleak, and while manufacturing has been weak, it is poised to turn around, Yamarone adds.

"You don't have to be an economist to see that this economy is soaring and continues to soar," he says. "Consumers can walk into any mall in the country and see there's not enough workers there."

As for manufacturing, Yamarone says the worst is over for the sector because global demand for U.S. manufactured goods is on the rebound. "We're deep into a recession and now we're going to start adding workers to pull us out."