Oct. 6, 2005--Big chain stores nationwide increased sales last month by slashing prices in the aftermath of Katrina and Rita, a sign that shoppers are getting tighter with their money, retailers reported Thursday.

Though updated figures for smaller retail outlets have yet to be released, Ken Perkins, president of Retail Metrics, said they were "facing the same headwinds and likely to be getting just as aggressive on pricing."

Despite the gains, retail sales growth flattened out in September as the economic impact of the Gulf Coast hurricanes continues to spread.

The storms, which kept record-high energy prices soaring and have put a damper on consumer confidence, also dropped service sector growth last month to a two-year low, the Institute of Supply Management reported Wednesday. Last week, the number of jobs lost in the Gulf Coast region and elsewhere rose by an additional 74,000 to 363,000, according to the Labor Department.

While offering big discounts, retail sales in September were up just 4%, dropping to its slowest pace in four months, according to the International Council of Shopping Centers, a trade association that tracks sales in some 75 chains. The slowdown was blamed on displaced consumers and fractured supply lines in the Gulf Coast.

Unseasonably warm weather also dampened the usual fall shopping spree, hitting apparel stores like the Gap, Ann Taylor and Talbots, which suffered a 5.1% drop in same-store sales, the trade association said.

Wal-Mart, Target, and other discount stores posted the highest gains, boosted by a surge in demand for emergency goods like bottled water, canned food, and batteries.

In a separate report issued Wednesday, the ISM index for retail trade and non-manufacturing businesses dropped to 53.3 from 65 the previous month, the sharpest decline in reported business activity since the index began in 1997. The monthly index polls some 370 purchasing and supply executives across 62 industries about business activity, new orders, prices and other indicators. Figures above 50 reflect growth.

The declines in the sector, which accounts for some 87% of the economy, resulted from already high energy costs made worse by the storms. None of the industries surveyed reported lower prices, the monthly survey showed, gauging prices paid at 81.4 from a low of 67.1 in August.

"The overall indication is continued economic growth in the non-manufacturing sector in September, but at a slower rate of increase than in August," said ISM Chairman Ralph Kauffman.

Those polled were concerned with both rising energy prices and the availability of raw materials after the storms, the report said.