Economy signals waning hurricane effects

WASHINGTON — There are signs the economy is shaking off the effects of the devastating Gulf Coast hurricanes.

The nation's retailers reported solid sales gains for October, a key gauge of activity in service industries posted a big rebound and productivity advanced at the strongest pace in more than a year, according to reports issued Thursday.

And analysts managed to find a silver lining in reports that were less positive, noting that while storm-related job losses kept rising and are now at 514,000, the increases are slowing. They viewed a bigger-than-expected drop in factory orders for September as a temporary setback rather than an indication of more serious problems in manufacturing.

Many of the nation's big retailers, including Wal-Mart Stores Inc. and Costco Wholesale Corp., reported stronger-than-expected sales as the arrival of cold weather boosted demand for winter clothes and falling gasoline prices put shoppers in more of a spending mood. The gains boosted prospects for the holiday shopping season.

Meanwhile, the Institute for Supply Management said the service sector of the economy, where most Americans work, grew at a faster pace in October.

The institute's non-manufacturing index rose to 60 last month, significantly higher than September, when the impact of the hurricanes and surging energy costs had helped push the index down to a reading of 53.3.

"Whatever impacts Katrina had in September were wiped out in October, and the nation's service and construction industries are moving ahead smartly," said Joel Naroff, chief economist at Naroff Economic Advisors of Holland, Pa.

Wall Street focused more on the positive economic news rather than a worrisome $2.03 surge in oil prices, which pushed a barrel of crude up to $61.78. The Dow Jones industrial average rose 49.86 points to close at 10,522.59.

The Labor Department said that productivity, the amount of output per hour of work, grew at an annual rate of 4.1 percent in the July-September quarter, the best showing since the spring of 2004 and much better than the 2.6 percent rate economists had been expecting.

Rising productivity means that workers can be paid more without boosting inflation pressures. The report found that unit labor costs declined at a rate of 0.5 percent, the first decline since the second quarter of 2004, and a hopeful sign that rising labor costs will not force the Federal Reserve to more aggressively fight inflation pressures.