US labor market weathers Katrina

The nation's labor market absorbed the impact from Hurricane Katrina without much trouble last month, shedding far fewer jobs than feared, the Labor Department reported yesterday.

In its first report to capture the effects of Katrina, the Labor Department estimated that the Gulf region lost 230,000 payroll jobs last month after the devastating storm, but solid job growth in the rest of the country offset most of those losses. Payroll employment in September fell by just 35,000 jobs nationally; economists had expected net losses of about 150,000.

The unemployment rate rose to 5.1 percent from 4.9 percent in August.

''The bottom line is that the job market carried good momentum and the economy can weather the temporary hit from the hurricanes," said Nigel Gault, US economist at Global Insight, a Waltham forecasting firm.

The September jobs report, however, may not have captured all the effects of Katrina. Labor Department officials conceded they could not precisely estimate the job losses because of problems surveying businesses and households in the devastated areas.

In addition, yesterday's report did not capture the effects of Hurricane Rita, which hit the Gulf Coast after Katrina. Economists expect more job losses when October employment is reported next month.

Analysts said yesterday it will take some time before the impact of Katrina on the economy is completely clear, with the surge in energy costs posing a particular risk to the economic expansion. Petroleum prices have moderated recently, but they remain elevated and a drag on consumer confidence.

But so far, economists said, the expansion appears solid. Recent data on factory orders, manufacturing activity, and retail sales were stronger than expected, while Labor yesterday said the economy created 77,000 more jobs in July and August than initially estimated.

This underlying strength, plus recently stated concerns about inflation by Federal Reserve officials, make it almost certain the central bank will continue to raise interest rates. In September, the Fed boosted its key rate for the 11th time since June 2004, to 3.75 percent.

Fed policy makers consider interest rates again on Nov. 1.

The Fed uses interest rates to manage the economy, cutting them to spur growth in recessions, and raising them during expansions to prevent rapid inflation.

Bill Cheney, chief economist at John Hancock Financial Services Inc., said yesterday he expects the Fed's benchmark rate to hit 4.25 percent by year's end. With an underlying growth trend of about 200,000 jobs a month, Cheney said, ''I think the Fed can go back to its main job: worrying about inflation."

Stocks, which sold off earlier this week on inflation concerns, rose only slightly yesterday. The Dow Jones industrial average increased 5.21 points to 10,292.31. The technology-heavy Nasdaq Composite index closed at 2,090.35, up 6.27 points.

For the week, the Dow was down 276.39, the Nasdaq 61.34.

Analysts said the impact of Katrina was seen in two employment sectors last month: leisure and hospitality, which shed 80,000 jobs, and retail, which lost 88,000. Both are key sectors in the Gulf Coast's tourism-heavy economy.

Analysts added, however, that hurricane recovery efforts might have aided job gains in temporary help, which added 32,000, and construction, which grew by 23,000 in September. Employment in oil and gas extraction rose by 1,000, a sign that Gulf energy production, shut down by Katrina, is increasing, analysts said.

Meanwhile, two sectors important to the Massachusetts economy experienced solid job gains last month. Professional and business services, which includes a variety of technology and technical firms, added 52,000 jobs. Employment in education and health services rose by 49,000.

''Not all the impacts of the hurricanes are in this report," said Denis McSweeney, regional commissioner of the Bureau of Labor Statistics in Boston. ''But overall, it's not as disastrous as we feared."

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