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Job drop not so steep
September's Katrina-fueled decline is first in two years but lower than forecasts; unemployment up.
October 7, 2005: 12:23 PM EDT
By Chris Isidore, CNN/Money senior writer

NEW YORK (CNN/Money) - The economy lost jobs for the first time in more than two years last month, the government said Friday, in a report that still showed the labor market has weathered the hit from Hurricane Katrina better than expected, at least so far.

U.S. payrolls fell by 35,000 last month, the first drop since May 2003, due to businesses that were closed and people who were displaced by the storm, the Labor Department said. Economists surveyed by Briefing.com had forecast a loss of 150,000 jobs last month.

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

But uncertainty about the impact of the storm on businesses along the Gulf Coast, and on the government's effort to collect data there, led to a very wide range of forecasts. On the high end Lehman Brothers projected a loss of 400,000 jobs, while on the low end Citigroup forecast a drop of just 25,000.

And in addition to September's reading, the government revised its July and August numbers higher, putting the economy in better position to withstand the impact of the nation's most costly storm. The report said that August saw a gain of 211,000 jobs, up from the earlier estimate of a 169,000 job gain.

Still, economists cautioned that it was premature to say damage to the job market from Katrina was minimal, noting it could take months to assess the full impact of the storm.

"I think it comes down to the mechanics of how folks were counted," said Steven Wieting, senior economist at Citigroup, whose payroll forecast was one of the closest to the reported total.

He cautioned that the initial reading on jobs is always suspect, but that was especially true this month, given the data collection challenges faced by the Labor Department.

Details, details, details

He said he expects payrolls to start growing again soon, perhaps even by next month's report.

Added Anthony Chan, senior economist at JPMorgan Asset Management: "Usually the devil is in the details. With this report, the greatest fear is that details of true labor market conditions will be found over the next couple of months instead of in this report."

The retail sector took one of the biggest hits last month, losing 88,000 jobs -- the biggest drop since April 2001. The Labor Department cautioned many of those job losses were not storm-related, though.

The leisure and hospitality sector saw jobs fall by 80,000 after the hit to tourism in New Orleans. But other industries found in the Gulf Coast region were essentially flat. Oil and gas drilling jobs rose by 1,000 nationwide, while producing petroleum and coal products lost just 300.

There were sectors that saw increases, including a 32,000 gain in temporary workers that the department said might have gotten a lift from hurricane recovery efforts.

Construction gained 23,000 jobs. The department didn't comment on the impact the storm had on construction, although it did say the change was in line with average gains in the sector.

Counting jobs, workers a challenge

"The Labor Department gave guidance that workers held on payrolls would be counted as employed, even if they couldn't be on the job," said Citigroup's Wieting. "Just assuming that everyone in New Orleans was out of a job was not the way to go."

Still, he said that comparing data from this storm with numbers from a year ago after four hurricanes hit Florida and the Gulf Coast suggest that job growth excluding Katrina would have been about 200,000, the average seen over the last year.

In its report, the department said that average hourly wages rose 3 cents, or 0.2 percent, to $16.18, in line with forecasts. That left the average hourly wage up 2.6 percent over the last 12 months, less than the 3.6 percent rise in consumer prices over the 12 months ended in August, the most data available.

On Wall Street, stocks rose modestly and Treasury bond prices stabilized as investors breathed a collective sigh of relief after the report.

For more on the economy and how it affects you and the markets, click here.  Top of page

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