The US economy lost 8,000 jobs last month, suggesting a slowdown in overall momentum, but a jump in hourly wages and continued tight labour markets heightened inflation fears.
In a report eagerly awaited by financial markets around the world, the Labour Department yesterday surprised Wall Street analysts expecting 220,000 new positions in September by announcing a net loss of jobs.
However, there was argument over the significance of the figures as part of the employment weakness was caused by Hurricane Floyd.
What caught the eye of investors and analysts was an 0.5 per cent increase in average hourly earnings in September and a 3.8 per cent gain year on year.
The unemployment rate held steady compared with August at a 29-year low of 4.2 per cent.
"On one hand, you've got evidence the economy is slowing on the job side," said the deputy chief economist of Harris Bank/Bank of Montreal, Mr Rick Egelton.
"On the other, you've got some evidence now that these very tight labour markets are starting to push up wage costs."
The dual messages in the report were initially reflected on Wall Street, where the Dow Jones Industrial Average lost 11.71 points in early trading before rebounding and gaining 42 points by mid-morning. By the close yesterday, it was up 112.71 points at 10,649.76, a gain of 1.07 per cent.
Mr Egelton predicted that Federal Reserve policy-makers would raise interest rates at their November meeting in response to evidence that wage-driven inflationary pressure is on the rise.
Fed Chairman Alan Greenspan has repeatedly warned that a shrinking labour pool in an economy fuelled by strong consumer spending will force employers to raise wages to attract and keep workers.
He said those wage hikes would eventually be passed on to the consumer in the form of higher retail prices.
But the problem for the Fed is that until now there has been little evidence of inflation in the economy.
In addition, yesterday's report offered evidence that US growth may be tapering off, rendering a credit tightening by the Fed unnecessary.
The Labour Department revised its August figures to show that only 103,000 jobs were created that month, down from its initial estimate of 124,000.
While the September report reflected losses caused by Hurricane Floyd, Bureau of Labour Statistics commissioner Katherine Abraham said "employment growth was weak even in those areas and industries largely unaffected by the hurricane".
Excluding the impact of the storm, the economy would have churned out only 50,000 new jobs last month, she said.
