The nonmanufacturing sector, which represents more than 80% of the U.S. economy, appears to be feeling the brunt of the post-Katrina and Rita surge in energy prices and plunge in consumer confidence.

The Institute for Supply Management said Wednesday that its nonmanufacturing index plummeted to a reading of 53.3 in September from 65.0 in August. This marked the biggest one-month drop in the eight-year history of the index. Wall Street economists were expecting the index to drop to 60.

"Many members' comments expressed concern about the continuing increase in oil and gas prices as well as Hurricane Katrina, and their impact on prices and economic activity," said Ralph Kauffman, chair of ISM's nonmanufacturing business survey committee.

The services report contrasted sharply with the ISM's survey of manufacturing Monday, which showed that sector of the economy was surprisingly strong in September. The ISM manufacturing index jumped to 59.4 in September from 53.6 in August, against expectations for the index to dip to 52.0.

Economists said that while the manufacturing sector was spared because of its indirect link to the consumer, service-sector firms are feeling the brunt of plunging consumer confidence.

In addition, service-sector operations, unlike manufacturing ones, were more likely to be located in the center of cities, such as New Orleans, that were hit by the hurricanes. On that note, Wendy's ( WEN) said Wednesday that same-store sales were hurt by store closings after Hurricanes Katrina and Rita, high gasoline prices and lower consumer spending levels. The restaurant-chain operator also lowered its earnings forecasts.

Finally, manufacturing firms were upbeat in part on expectations of huge rebuilding efforts in southeastern states hit by Katrina and Rita.

"While manufacturing may have gotten a boost from the hurricanes, the rest of the economy is feeling the effects of the energy price spikes," says Joel Naroff, president of Naroff Economic Advisors.

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