Economy jolted in August

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

The government reported yesterday 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 underway.

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.

On Wall Street, a sharp rise in oil prices pushed stocks lower yesterday. The Dow Jones industrial average fell 52.54 points to close at 10,544.90.

Even before Katrina, the economy was weakening, according to the report yesterday 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.

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.