Economy sheds jobs for first time in two years

Martin Wolk Chief economics correspondent • Profile • E-mail

The economy lost only 35,000 jobs last month despite the devastation left by Hurricane Katrina, the government estimated Friday in a report that showed payrolls expanding steadily outside the storm-slammed Gulf Coast region.  The nation’s jobless rate edged up to 5.1 percent from 4.9 percent.

Analysts said the report needed to be treated with caution due to the difficulty of tracking the thousands of individuals and businesses displaced by the storm. But the apparent underlying strength in the economy — including revisions showing that employers added 77,000 more jobs in July and August than previously estimated — fortified the view of many economists and investors that the Federal Reserve will continue raising interest rates well into 2006.

“Overall the economy remains quite healthy despite the rise in energy costs which had taken place even in the month of August,” said Bank of America economist Lynn Reaser. “If one takes the number at face value there is a suggestion that the immediate damage of the hurricane was less than expected and/or the rest of the economy was much stronger.”

Financial markets took the report in stride although earlier in the week stock prices fell sharply on concerns that the Fed will be more aggressive than expected in raising interest rates to keep a lid on inflation.

Dallas Fed President Richard Fisher, who twice warned this week that inflation was rising to the top of the Fed’s “tolerance zone,” kept any new insights to himself Friday, opening a speech in Waco, Texas, by declaring he would not comment further on monetary policy.

The widely watched Dow Jones industrial average, which had closed Thursday at its  lowest level in three months, was up about 0.2 percent in afternoon trading.

The employment report was the government’s first assessment of how the economy performed in September and came loaded with caveats given how hard it was for survey teams to reach businesses and households in the devastated regions around New Orleans and on Missisippi’s Gulf Coast. The survey period ended Sept. 12 and therefore did not reflect the impact of Hurricane Rita, which swept through parts of Texas and Louisiana late in the month.

An official of the Bureau of Labor Statistics said that if there had been no hurricane the economy probably would have added about 195,000 jobs in September, in line with the past year’s average, suggesting that Friday’s report reflected 230,000 jobs lost due to Katrina. Weekly reports filed in Louisiana and Mississippi since the hurricane indicate that 363,000 people already have filed for unemployment insurance due to the storm.

“I think you have to be somewhat skeptical about the payroll number,” said Bill Dudley, chief U.S. economist at Goldman Sachs.

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