September 7, 2005--Service sector gains in production, new orders and employment continued in the weeks before Hurricane Katrina despite rising prices, a poll released Tuesday showed.

The Institute for Supply Management Non-Manufacturing Index, a monthly survey of purchase and supply managers across the country, put business activity in the service sector last month at 65%, up from 60.5% in July. It was the highest rating since April 2004.

The gains, which were tallied before Hurricane Katrina struck the Gulf Coast, came despite record-high oil prices and shaky consumer confidence throughout the summer, and were underpinned by continued growth in industries linked to housing construction, the survey indicated. Retailers, by contrast, struggled with slower auto sales and gas prices.

Industries reporting the highest growth rates were mining, transportation, utilities, real estate and legal services, according to the survey. While some saw little or no change from the previous month, none of the 62 industries polled reported a drop in activity in the sector, which accounts for 87% of the U.S. economy, according to the Commerce Department.

The August survey also showed new orders up by 3.9 percentage points to 65.8%, indicating a faster rate of growth than July. Also up was employment, at 59.6% from 56.2%, for the twenty-third consecutive month. The entertainment industry posted the biggest gains in employment, followed by health services and retail trade.

Still, many service sector managers continued to complain about rising prices, led by the agriculture, transportation and insurance industries. The August price index remained high at 67.1%, dropping 3.2 percentage points from 70.3% in July. Again, those surveyed blamed high prices primarily on the rising costs of oil and gas.

More modest gains were recorded in the inventory index, which inched up 1 percentage point higher than July at 53.2%.

The index is compiled by the ISM, a supply management research group, from a survey of 370 purchasers and suppliers nationwide and is released on the third business day of every month.