Nov. 4 (Bloomberg) -- The U.S. economy added 56,000 jobs in October, about half the number economists expected, as higher fuel costs raised concern among employers that consumer spending may begin to falter.

The economy also created 36,000 fewer jobs over the previous two months than first estimated, the Labor Department said today in Washington. The downward revision for August suggests businesses have been increasingly cautious since mid-summer.

Concern that the consumer is tapped out caused department stores, restaurants and auto dealerships to rein in hiring last month. The jump in fuel prices because of disruptions from the hurricanes threatens to undermine spending when consumers receive home-heating bills in coming months, economists said.

``The worries created by the high energy costs are affecting not only pricing decisions but hiring as well,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. ``If there is uncertainty about consumer spending, then it has to translate into a slowing in hiring.''

While the Bureau of Labor Statistics today said the job growth was ``below trend'' even in areas not hurt by Hurricanes Katrina or Rita, some economists said the results are still being distorted by the hurricanes. Joshua Shapiro at MFR Inc. said other labor market data have pointed to stronger job growth than what was reflected in today's numbers.

Positive Signals

``We would not jump to any conclusions based on these numbers,'' Shapiro said. Jobless claims have declined in recent weeks, October job-cut announcements were down from last year and a gauge of online help-wanted advertising rose, recent reports have shown.

Payroll growth has now averaged 65,000 in the last three months, compared with 202,000 from January through July. The median forecast of economists for October employment was for a 120,000 gain.

The report didn't cause economists to change forecasts that Federal Reserve policy makers will keep raising interest rates. Fed Chairman Alan Greenspan told lawmakers yesterday the economy still has ``important forward momentum'' and that employment was strong before Katrina struck Aug. 29.

Interest Rates

``I can't interpret this report this morning as a weak economy, and I don't think the Fed will either,'' said Lyle Gramley, economic adviser at Stanford Washington Research Group in Washington and a former Fed governor. ``They are going to persist in moving interest rates up until they see greater indications than what we have now that either the economy is weakening, or inflation is getting under control, or both.''

The Treasury's benchmark 10-year note fell 3/16, pushing up the yield 1 basis point, or 0.01 percentage point, to 4.66 percent, at 5:15 p.m. in New York.

The jobless rate, which is determined by a separate survey, fell to 5 percent from 5.1 percent, the department said. The rate was forecast to hold at 5.1 percent. An index gauging hiring fell to 50.2 in October, the lowest since November 2003. A reading of 50 signals that as many industries hired as fired.

``Job growth in the remainder of the country appeared to be below trend in October,'' said Kathleen Utgoff, commissioner of the Bureau of Labor Statistics, in a statement. ``It is possible, of course, that employment growth for the nation could have been held down by indirect effects of Hurricanes Katrina and Rita, for example, because of their impact on gas prices.''

Consumer Reports

Today's report showed that service industries, which include retailers, banks and government agencies, rose by 7,000 jobs last month after an increase of 5,000 in September, the report said. That marked the weakest two months since March-April 2003.

``The data provide a note of caution, and that upcoming consumer spending reports are key,'' said David Resler, chief economist at Nomura Securities in New York, in an e-mail note to clients. ``Yesterday's chain store report alludes to consumer spending having partially revived, but with the upcoming heating season ahead of us, consumer spending still bears close watching. The revival cannot be taken for granted.''

Retailers

U.S. retailers reported October sales were the strongest in four months, led by Wal-Mart Stores Inc., Target Corp., J.C. Penney Co. and Nordstrom Inc.

Payrolls were projected to rise from a previously reported decline of 35,000 in September, based on the median forecast of 72 economists.

``There has been a little bit of a pause,'' said Paul Sarvadi, chief executive of Administaff Inc., a personnel- services provider based in Kingwood, Texas. Some employers have ``some caution about fuel prices and rising health- care costs.''

Payroll numbers are based on a survey of employers, while a separate survey of households determines the jobless rate. Manufacturers added 12,000 jobs after a decline of 28,000 a month earlier, compared with the median forecast of a drop of 9,000.

Competitive Pressures

``This economy is not producing jobs in a normal way,'' said Lacy Hunt, chief economist at Hoisington Investment Management, in Austin, Texas, in an interview. ``We have serious global competitive pressures working on the economy. There continues to be a very rapid increase in productivity, which is undermining demand for labor.''

Employment at construction firms rose 33,000. Among service industries, payrolls at retailers fell by 5,400 and employment at temporary help services rose by 11,100.

Manufacturing was helped by the end of a strike at Chicago-based Boeing Co., the world's second-biggest commercial aircraft maker, that allowed 19,000 machinists to return to work.

The manufacturing workweek rose 41 hours from 40.6 hours, while overtime held at 4.5 hours. Average weekly hours worked by production workers held at 33.8 for a second month.

White House officials were encouraged by the jobs figures.

``We were very pleased with the report,'' said Al Hubbard, director of the White House's National Economic Council, in an interview. ``This economy is on a sustainable path and we're going to continue to create more jobs'' and the ``unemployment rate is going to continue to drift down.''

Earnings

Incomes rose last month. Workers' average hourly earnings rose 8 cents to $16.27 an hour, a 0.5 percent increase that was the biggest since February 2003. Average weekly earnings rose to $549.94 from $547.22 in September. The earnings data are for non-supervisory production workers, which account for 80 percent of payroll employment.

Payroll strength through the rest of the year may help determine when the Fed stops raising interest rates, economists said. The Fed on Nov. 1 lifted its overnight rate for a 12th straight time, to 4 percent. Traders in Fed rate futures are betting on at least two more quarter-point increases, in December and January, to help ensure that surging energy prices don't pass through into inflation.

Upcoming reports

``It is more important what the jobs report shows in December and January -- that will affect how many rate hikes we'll have this spring,'' said David Malpass, chief economist at Bear Stearns Cos. in New York, in an interview before today's report.

Katrina struck the Gulf Coast on Aug. 29 and Rita hit on Sept. 24; Hurricane Wilma struck South Florida on Oct. 24, too late to affect the October jobs report. The three storms claimed more than 1,280 lives and caused as much as $77 billion in insured losses.

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net.

Last Updated: November 4, 2005 17:36 EST