Updated from 9:05 a.m. EDT

The U.S. economy added a fewer-than-expected 96,000 jobs in September, hurt by renewed declines in the manufacturing sector and weak hiring growth among construction companies. While the labor market continued to expand, Friday's reading shows the economic recovery remains uneven heading into November's presidential election.

The unemployment rate held steady at 5.4% last month, in line with expectations. But average hourly earnings increased just 0.2% below the 0.3% forecast. Economists had been projecting payroll growth of about 150,000 prior to the release.

The Labor Department revised down the number of jobs added in August to 128,000 from 144,000, but revised July payrolls up by 12,000 to 85,000. The government also released a preliminary revision of employment growth for the period of March 2003 through March 2004, saying about 236,000 more jobs were created than originally thought. That was below the average for the past 10 years and it missed estimates from President Bush's Council of Economic Advisers.

"We are now 10 or 11 quarters into an economic expansion and you still have weak employment growth," said Asha Bangalore, economist at Northern Trust. "That is not in any way speaking well of economic performance."

While the report is ammunition for Democratic presidential challenger John Kerry, it isn't a knockout blow for either campaign. Almost 600,000 jobs have been lost since President Bush took office, but 1.8 million have been created since a trough in August last year.

As for monetary policy, several economists said they still expect the

Fed

to raise rates by a quarter point for a fourth time in November, although another soft jobs report for October could keep the central bank on hold at the December meeting.

"This report is likely just healthy enough to keep the Federal Reserve on its tightening track in November, but also just soft enough to keep the possibility of a December pause alive," said Sherry Cooper, chief economist at BMO Nesbitt Burns.

Among sectors, manufacturers shed 18,000 jobs in September, reversing a summerlong trend, while chain stores gave up 15,000 jobs. The overall service sector added 109,000 jobs last month, while construction payrolls grew by just 4,000.

The average workweek held steady at 33.8 hours. The average workweek in manufacturing fell 0.1 hours to 40.8. Aggregate hours worked in the economy increased 0.1%.

Stocks were mixed after the report, with the

Dow

up 16 points to 10,141 and the

Nasdaq

down 2 at 1946. Bonds jumped, with the yield on the 10-year note falling to 4.13%.

Although the data were underwhelming Friday, some economists said severe storms in the Southeast could have had some impact. "I'm pretty certain the hurricanes depressed the job count," said James Glassman, senior economist at J.P. Morgan.

The Bureau of Labor Statistics said bad weather "appears to have held down employment growth" during the month, but noted that it was "not enough to change materially the bureau's assessment of the employment situation in September."

On Thursday,

Banc of America

(BAC) - Get Report

said it would cut 4,500 jobs, as it continues to integrate with FleetBoston, and

AT&T

(T) - Get Report

said it would slash about 12,000 positions, or about 20% of its workforce.