Job growth resumes in October

US job growth resumed in October but at a slower pace because of high energy costs and other lingering effects of the Gulf Coast hurricanes, the Labor Department reported yesterday.

Payroll employment grew by just 56,000 jobs in October, following a loss of 8,000 jobs in September, which was the first and only decline in more than 2 years. The unemployment rate slipped to 5 percent, from 5.1 percent in September.

Job growth was weak even outside states and employment sectors hit hardest by hurricanes Katrina and Rita, possibly because of surging energy prices that followed the storms, Labor Department officials said. Economists agreed concerns about high energy costs, as well as rising interest rates, may have made businesses more wary about hiring.

John Bitner, chief economist at Eastern Investment Advisors, a unit of Eastern Bank in Boston, said one indication of that caution is the recent jump in productivity. The Labor Department reported this week that productivity rose at a 4.1 percent annual rate in the last quarter, compared with 2.1 percent increase in the previous quarter.

That's a sign employers are meeting demand by getting existing employees to produce more, instead of hiring new workers.

''Business profit margins are getting squeezed by high energy costs, and higher interest rates, and they're looking to hold down expenses," Bitner said. ''A higher productivity number is not good for hiring."

Economists noted that because of difficulties surveying businesses and households in areas devastated by the hurricanes, the data may be distorted. It likely will be next month before a clearer picture emerges, they said, and the slowdown in hiring could prove to be temporary.

Still, economists said, there's little doubt job growth weakened in October. Even sectors not much affected by the hurricane, such as professional and business services, and education and health services slowed dramatically.

Professional and business services added just 12,000 jobs in October, after averaging 37,000 a month in the past year. Education and health services added 11,000, compared with a 12-month average of 32,000.

Consumer sectors, meanwhile, experienced some of the sharpest declines last month, a sign that higher gasoline and heating fuel prices are cutting into discretionary spending. Department stores cut 18,000 jobs. Restaurants and bars slashed more than 14,000. Auto dealers trimmed nearly 9,000.

''If you couple high energy costs with falling consumer confidence, it's going to take a toll on consumer spending, which drives the economy," said Denis McSweeney, regional commissioner at the Bureau of Labor Statistics in Boston. ''There's weakness in all sectors, and you can't attribute all that to Katrina."

The disappointing report dampened the stock rally of the last few days. The Dow Jones industrial average eked out an 8.17-point gain to close at 10,530.76. The technology-heavy Nasdaq Composite index rose 9.21 points to close at 2,169.43.

But October's job growth isn't weak enough to keep the Federal Reserve from boosting interest rates, economists said. The Fed is expected to increase its benchmark short-term rate another quarter point next month, to 4.25 percent, and continue raising rates into next year.

Central bankers are raising rates because they are worried that inflation is picking up as the economy grows.

Energy costs are an immediate concern, but a tightening labor market, which means employers have to pay higher wages to attract or keep employees, is also adding to inflation worries, economists said.

The unemployment rate is half a percentage point lower than a year ago, and last month, average hourly earnings rose a half percent, the greatest monthly advance in more than 2 years. Over the year, hourly wages are up 2.9 percent, also the biggest jump in more than two years.

Better pay, of course, is good news for workers. But that was not the only bright spot in the report. Financial services added 22,000 jobs. Manufacturing employment, aided by the end of strike at aerospace firm Boeing Co., rose by 12,000 in October, the first gains in that sector in five months. Construction employment rose by 33,000, with some of the gains attributed to rebuilding efforts along the Gulf Coast.

Gulf Coast residents, however, are recovering slowly. The Labor Department estimates that one in four of those evacuated remain unemployed. Those able to return home have an unemployment rate of 10.5 percent; those still living in other places have an unemployment rate of 33.4 percent.

Robert Gavin can be reached at rgavin@globe.com.