Incredulous about the sluggish pace of hiring in September, some economists insist that hurricanes distorted the data.

But the jobs report Friday was a clear blow to the bulls, who were expecting confirmation that the economy is no longer mired in a "soft patch."

Nonfarm payrolls increased just 96,000 last month while the unemployment rate held steady at 5.4%, as 221,000 people dropped out of the labor force. The consensus among economists was for 150,000 job gains, although estimates ranged from 10,000 jobs lost to 250,000 jobs added.

The details of the report were equally lackluster. Some 18,000 manufacturing jobs were shed last month, and the manufacturing workweek declined. Meanwhile, average hourly earnings rose just 0.2%, below the 0.3% estimate. The household survey showed that employment fell by 201,000.

James Glassman, senior economist at J.P. Morgan, said the report probably isn't as bad as it looks. "I'm pretty certain the hurricanes depressed the job count," he said.

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."

Still, Glassman pointed out that there was a 205,000 increase in the number of people who were unable to go to work because of bad weather, according to the government's smaller-scale household survey. That is clearly a material number. "I think we're going to find out that hurricanes did hold us down," he said.

Other economists take issue with that point, however. Ian Shepherdson, chief economist at High Frequency Economics, said there is a "very big difference" between what counts as hurricane-related joblessness in the household and establishment surveys.

"It is therefore simply not possible to point to the household survey data as evidence that the BLS is wrong to say the hurricanes had no material effect on payrolls," he said. "We have no reason to doubt the BLS's word."

Richard Yamarone, an economist at Argus Research, said payroll creation of just 96,000 last month is consistent with his economic growth projection of between 2.5% and 3% in the fourth quarter and first quarter of next year.

"With aggregate demand clearly tapering off, and health care and energy costs eating at the bottom lines of corporate America, there's simply no need to step up the pace of hiring," he said.

Economists said the data probably aren't weak enough to stop the

Federal Reserve

from raising rates by a quarter point next month. But Asha Bangalore, an economist at Northern Trust, said the central bank could pause in December if the labor market remains soft in October.

"The main message is the economy is not creating jobs as fast as the Fed would like," she said. "We are now 10 or 11 quarters into an economic expansion, and you still have weak employment growth. That is not in any way speaking well of economic performance."

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. Meanwhile, the government released a preliminary revision of employment growth for the period of March 2003 through March 2004.

The BLS said 236,000 more jobs were created during that period than originally thought, but it noted that this is below the 10-year average.

President Bush's Council of Economic Advisers had predicted that payrolls could be revised up by 288,000, and possibly as much as 384,000, although economists said those assumptions were aggressive. Benchmark revisions are based on more complete data from unemployment insurance tax records.

While the report Friday provides ammunition for Democratic presidential challenger John Kerry, it isn't a knockout blow for either campaign. About 581,000 jobs have been lost since President Bush took office, and private sector jobs are down by 1.3 million when benchmark revisions are included. But 1.8 million have been created since a trough in August last year.

"There's something in every report for both sides," said Josh Feinman, chief economist at Deutsche Asset Management.

Job growth was supported last month by government hiring and held down by losses in manufacturing and retail. The government added 37,000 new jobs while manufacturing shed 18,000, the first decline since June. Retail lost 15,000 but service-producing sectors added 109,000 jobs.

In the past three months, job gains have averaged just 103,000, down sharply from the three month average in spring. Economists say about 150,000 new jobs are needed each month to keep up with the growth in the population.

The labor participation rate and the employment-to-population rates both fell by one tenth of one percent to 65.9% and 62.3%, respectively.

One possible silver lining was a rise in temporary help. Temp jobs rose 33,000 in the month. Also, aggregate hours worked in the economy increased 0.1%.

Stocks were generally lower Friday, with the Dow down 21 points at 10,104 and the Nasdaq off by 13 at 1935. Bonds rallied sharply, with the yield on the 10-year note falling to 4.13%.

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.