Now Katrina is battering economy

WASHINGTON — Hurricane Katrina is starting to eat into the economy, leading to concern that consumers will lose confidence and curtail spending.

The government reported Wednesday that retail sales plummeted last month, even before the storm hit, as high gasoline prices jolted consumers. Also, industrial output was nearly flat, reflecting widespread shutdowns of oil platforms, refineries and chemical plants along the battered Gulf Coast.

Analysts said they still believed Katrina will amount only to a temporary blow to the economy and that stronger growth will follow as rebuilding gets under way.

But they said the impact could turn out more severe if soaring energy prices cause consumers to cut back very sharply on spending elsewhere.

Industrial output posted a 0.1 percent gain in August. It would have been 0.4 percent, the Federal Reserve reported, if not for the shutdown of much energy and chemical production along the Gulf Coast at the end of August before Katrina struck.

Economists predicted the fallout would continue as the energy industry struggles to regain its footing.

"The industrial production numbers in the next two months will look pretty awful as the full impact on the hurricane-related shutdowns show up in the data," said Nariman Behravesh, chief economist at Global Insight, a Lexington, Mass., consulting firm.

Even before Katrina, the economy was weakening, according to the report Wednesday that showed retail sales plunged by 2.1 percent in August. That was the biggest since a 2.9 percent decline since November 2001, right after the attacks of Sept. 11, 2001.

The August decline was twice the size economists had forecast.

The weakness came from a 12 percent drop in auto sales. Demand slackened after two strong months in which employee discounts offered to the public spurred sales.

Excluding autos, retail sales rose by 1 percent — half of which came from a huge rise in gasoline prices. Analysts said the retail sales data was evidence that gasoline above $3 per gallon was having an impact on consumer demand in other areas such as clothing.

Sales at departments rose a sluggish 0.3 percent. Demand at clothing stores was flat in August following a 0.9 percent decline in July.

Ian Shepherdson, chief economist at High Frequency Economics, a consulting firm in Valhalla, N.Y., said he did not expect a quick rebound in retail sales. He said he believed high energy costs would continue to depress consumer spending for several more months.