The sluggish pace of job growth in November hasn't changed the odds for a quarter-point interest rate hike later this month, but maybe it should.

Nonfarm payrolls increased by just 112,000 in November, and the months of October and September were revised lower by a combined 54,000. Economists had been expecting 200,000 jobs last month.

The employment report, which bodes ill for retailers in the all-important holiday shopping season, had little impact on interest rate expectations for the Dec. 14 meeting. Fed funds futures contracts are still pricing in a 96% chance of a 25-basis-point hike, unchanged from Thursday night.

"Recall that the summer's 'soft patch,' which generated even weaker payroll results, did not stop the

Fed

from raising rates at the time," said Sherry Cooper, chief economist at BMO Nesbitt Burns.

Cooper pointed out that, over the past three months, job growth has averaged 178,000 a month, which is respectable. Roughly 150,000 jobs are needed each month to keep up with the growth in the labor force.

Still, if government and temporary jobs are stripped out, the three-month average slips to 131,000 a month. And even this number has been exaggerated by a huge jump in October, which now appears to be a one-time event.

"October now clearly stands as an outlier, partly thanks to the hurricane effect and partly, we think, to plain old sampling error," said Ian Shepherdson, chief economist at High Frequency Economics.

The Labor Department originally reported that 337,000 jobs were added in October, with a large portion coming from the construction sector after four hurricanes swept through the southern U.S. On Friday, it revised that amount down to 303,000.

"The November numbers are in line with the message from the summer's drop in the help wanted index, which unfortunately points to another month or two of similar numbers," Shepherdson said.

Although seasonal factors were "less friendly" this November than last year, they were partly offset by a larger estimate for job creation by new businesses, "so most of the damage is in the core numbers," he added.

The details of the labor report Friday were disappointing. The average workweek fell by a tenth of an hour to 33.7 hours and total hours worked in the economy dropped by 0.2%. Average hourly earnings rose a meager 0.1% and are now up just 2.4% from last year.

"It tells us there's income out there to spend but not a great amount," said Joel Naroff, chief economist at Naroff Economic Advisors. "It means that we'll probably have an OK holiday season but not a great one."

With tax relief fading, interest rates on the rise, personal savings at a record low and energy prices at high levels even after a recent selloff, consumer spending has become increasingly dependent on an improvement in the job market and pick up in wage growth.

In the third quarter, consumer spending rose 5.1% but the pace will likely slow in the fourth quarter and into 2005. Last month, retailers reported weaker-than-expected same-store sales and consumer confidence fell to its lowest level in nine months on concerns about the employment outlook.

In the Conference Board's latest confidence survey, consumers expecting fewer jobs to become available in the next six months rose to 19.7% from 18.3%, while those anticipating more jobs to become available was relatively unchanged at 16.8%.

Peter Morici, a business professor at the University of Maryland, said declining auto sales, which account for 4% of the U.S. economy, are weighing down job creation in the vehicle assembly and auto parts sector.

General Motors

(GM) - Get Report

and

Ford

(F) - Get Report

both announced production cuts this week.

Manufacturing firms lost 5,000 jobs in November, the third straight decline, while construction added 11,000 jobs after gaining 65,000 in October.

The services sector added 104,000 jobs and retail firms lost 16,000 jobs. Professional and business services added 28,000, including 9,000 at temporary help agencies. Government jobs rose by just 8,000, after climbing an average of 35,000 over the prior three months.

A separate survey of households showed employment up by 483,000 in November while unemployment fell by 45,000 to 8.027 million. That helped push the jobless rate down to 5.4% from 5.5%. Still, most economists, and Fed Chief Alan Greenspan, believe the payroll survey is more reliable because it includes data from a much broader sample.

Stocks reacted surprisingly well to the data Friday, with the

Dow

up 33 points at 10,618 and the

Nasdaq

up 11 to 2154, as investors determined that the Fed would take a more measured approach to raising rates next year. Meanwhile, bonds surged, with the yield on the 10-year note falling to 4.25%.

The odds for a rate increase in February have now fallen to 80% from 86% and the odds for March have tumbled to 54% from 76%, according to Tony Crescenzi, chief bond strategist at Miller Tabak & Co and a contributor to

TheStreet.com's

sister site,

RealMoney.com

.