Oct. 7, 2005--Fewer jobs were lost last month than expected in the aftermath of Hurricane Katrina, though unemployment reached its highest rate since May, the Labor Department reported Friday.

The storm, which slammed into the Gulf Coast on Aug. 29, inched the unemployment rate up to 5.1% in September, from a four-year low of 4.9% the previous month. Overall, the economy lost 35,000 jobs last month, after gaining a revised 277,000 in July and 211,000 in August, according to Bureau of Labor Statistics figures, the first major household and employer survey to assess Katrina's impact on the job market.

Despite the losses, the declines were well below economists' expectations. "Today's report outshines original estimates that the economy would have lost more than 150,000 jobs to Katrina," said the National Federation of Independent Business, a small business advocacy group.

An unrelated survey of payroll data released earlier this week showed hiring was down at small businesses last month.

In total, the number of persons unemployed due to job losses rose by 234,000 to 3.7 million. Those unemployed within the last five weeks grew by 193,000 to 2.7 million. Both figures had been trending down in recent months, the department said.

The season's second big storm, Hurricane Rita, struck too late in September to be reflected in last month's results.

Jobs in the leisure and hospitality industries dropped by 80,000, partly due to the storm, the department said, adding that about 363,000 jobless claims over the past five weeks can be traced to Katrina. The storm is expected to cause up to 480,000 lost jobs, according to Congressional Budget Office estimates.

Other big losses were reported in the retail sector, which cut payrolls by 88,000 after a full year of adding an average of 18,000 new jobs each month. Among retailers, clothing and accessories stores, sporting goods stores, building material and garden supply stores, and food and beverage stores all reported job losses last month. Manufacturing employment was also down by 27,000, as was transit and ground-passenger transportation.

The retail losses were offset by growth in the professional and business services sector, which rose by 52,000, as well as gains in health care and construction.

Workers' average hourly earnings increased three cents to $16.18 an hour.

U.S. Labor Secretary Elaine Chao said the numbers "show that our nation's economy is still fundamentally strong," according to a NFIB statement.

In an unrelated report, executives said they remained optimistic about the job market. In a recent poll conducted by TheLadders.com, an online employment service for high-end jobs, 62% of respondents agreed that now is a "better time to be in the job market than this time last year."