WASHINGTON, Oct 7: The US economy shed 35,000 jobs in September, fewer than feared despite Hurricane Katrina, underlining the expansion’s vigour before two big storms hit the Gulf Coast, a Labour Department report on Friday showed.

In addition, the report showed more jobs were created in both July and August than previously thought. However, the national unemployment rate rose to 5.1pc last month — highest since May — from 4.9pc in August.

Wall Street economists had predicted a loss of 143,000 jobs last month, largely because of devastation caused by Hurricane Katrina, which slammed into the Gulf Coast on August 29. It was followed by Hurricane Rita, on Sept 24, which will show up in October’s employment report.

“The good news is that job growth had been picking up and that should cushion the fall caused by the hurricanes,” said economist Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania. He added it also means that, for the Federal Reserve, “this is just another reason to keep hiking rates.”

The department indicated that September payroll growth likely would have been in line with the 194,000 jobs-a-month average that have been created over the past year if not for the blow delivered by Katrina. It wreaked havoc on the port and tourist city of New Orleans and disrupted other local economies in Louisiana, Mississippi and Alabama.

“Hurricane Katrina undoubtedly devastated individuals and communities in the Gulf Coast, but on a macro-economic basis it’s clear that the US economy has more than enough momentum to absorb the hit and recover quickly,” said economist Bill Cheney of John Hancock Financial Services Inc. in Boston.

September marked the first month in which there were job losses since May 2003, when 26,000 were cut.

The department revised up its estimates for job growth in July and August by a combined 77,000. It said there were 211,000 jobs created in August instead 169,000 and 277,000 in July rather than 242,000.

US Treasury debt prices sank after the jobs data was published but recovered to post small gains by midday. Stocks held slim gains at noon as investors apparently felt relieved enough about the expansion’s durability to set aside some of their worry over rising credit costs.

Over the past week, several Fed policy-makers have served notice that the US central bank is worried about potential inflation, partly because of rising energy prices.

As recently as Thursday, Dallas Federal Reserve Bank President Richard Fishers said core inflation readings of 1 per cent to 2 per cent “are edging closer to the upper end of the Fed’s tolerance zone, with little inclination to go in the other direction.”

The Fed already has raised short-term US interest rates 11 times since mid-2004, to a current federal funds rate of 3.75 per cent from 1 per cent when the rate-hike campaign began, and expressed its intent to keep potential inflation in check.

The Labour Department said it had sought a rough idea of Katrina’s impact on job markets by eliminating survey results from the areas in which the storm struck hardest. “This exercise showed that total non-farm employment would have increased by an amount in line with the prior year’s average,” it said.

—Reuters