The US economy suffered only a small drop in employment last month in spite of the disruption on the Gulf coast, and revisions pointed to more robust job growth over the summer.

Employer payrolls fell by 35,000 in September, the Labor Department reported, much less than consensus forecast of a 150,000 drop.

July and August's payrolls were revised upwards to an average of 244,000 per month from 206,000 based on the earlier estimate. Over the past 12 months the average was 194,000.

The employment report, one of the broadest measures of the strength of the economy, was the latest piece of evidence supporting the Federal Reserve's view that the expansion has not been derailed by Hurricane Katrina, bolstering its expectation that it will continue to raise interest rates.

A series of Federal Reserve regional presidents, have said the economy is growing well, that there is little labour market slack and that the central bank needs to raise rates to keep inflation in check.

Surveys have pointed to a rise in inflation expectations following Katrina and the increase in energy prices.

The Labor Department estimated Katrina cut about 230,000 jobs from payrolls last month, suggesting strength in the rest of the country. The biggest falls were in the retail and leisure industries, where in both cases employment dropped by about 80,000.

“This means that the Fed can afford to focus on the inflationary implications of Katrina, confirming their belief that the impact on growth is likely to be modest,” said Alan Ruskin, director of research at 4Cast, the consultancy. “The underlying job creation rate is pretty healthy.”

Building inflation pressures in the labour market is one source of concern for the Federal Reserve, although there was little sign of that in the payroll data. Hourly wages rose 0.2 per cent last month and 2.6 per cent in the 12 months to September. This continues to lag behind inflation. The consumer price index has risen 3.6 per cent in the year to August and some economists expect the headline rate to rise to 4.4 per cent in September.

Separately, the Household survey showed that a similar number of jobs were lost last month in the national economy and in the affected region. The unemployment rate rose to 5.1 per cent in September from 4.9 per cent.

The Labor Department has said it would not count people who remained on payrolls but who were not able to work in New Orleans and the surrounding area as having lost their jobs. It is possible there will be a greater impact on employment over time, but jobs will be created in rebuilding the area.

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