US retail sales suffered an unexpectedly steep decline last month after a record fall in car sales, government data showed on Wednesday, while industrial output growth was held back sharply by Hurricane Katrina.
August industrial output grew just 0.1 percent as the storm hit at the end of the month, the Federal Reserve said, compared with forecasts for a 0.3 percent rise. Utilities and mining output were particularly hurt, sliding 0.5 percent and 0.6 percent respectively.
Separately, the Commerce Department said August retail sales fell 2.1 percent, the largest drop since November 2001. However, sales excluding autos climbed a stronger-than-expected 1.0 percent, showing strong demand before Katrina struck.
The surge outside the car sector encouraged some analysts to ramp up forecasts for third-quarter growth, and reinforced expectations the Fed would continue its more than year-long policy of raising interest rates.
The Commerce Department said it had to estimate results from some retailers in its survey because of Hurricane Katrina, but expected the impact to be small, because the storm-affected region accounted for barely 1 percent of national sales.
"Moreover, the effect of the hurricane on the national retail sales estimates in August would be much less, since the hurricane only impacted the last few days of August," it said.
The dollar weakened on total retail sales, but US gains in government bond prices were trimmed as dealers focused on the buoyant ex-autos reading.
"Sales ex-autos were decidedly stronger than people had given credit for. This is an important piece of information on where the economy was prior to Katrina," said Steve Ricchiuto, chief US Economist at ABN Amro in New York.
"People who were really slashing third-quarter GDP forecasts might need to rethink. The economy was more resilient than people thought. It supports the thesis that the Fed will raise rates in September at least," he said.
Central bank policy-makers meet on Tuesday to decide whether to raise borrowing costs for the 11th consecutive time, to 3.75 percent.
Wall Street analysts had forecast retail sales to decline 1.2 percent following July's 1.8 percent gain. But sales were held back by a record 12 percent drop in motor vehicle and parts sales, despite continued heavy discounting by dealers.
Retail sales outside of the auto sector rose 1 percent, compared with expectations for a 0.5 percent advance.
But much of the rise was a pure price effect after gasoline spiked higher, a gain that continued into September after the storm drove prices well above $3 a gallon in many places.
The Commerce Department said August gas station sales were up 4.4 percent. Retail sales excluding motor vehicles and gasoline gained 0.5 percent following an unchanged reading in July, it said.
Analysts fear high energy prices could sap consumer spending, on top of any negative fallout from Katrina, although the economic evidence so far has been mixed.
Wal-Mart Stores Inc, the world's biggest retailer, on Friday reported strong demand for hurricane-related merchandise. It repeated its September forecast of 2 percent to 4 percent sales growth, but warned this was subject to revision because of oil prices and the hurricane.
Furniture sales delivered a solid 0.9 percent advance in August while building materials and garden equipment grew by 0.5 percent. The US housing market has been surging thanks to low borrowing costs, buoying prices and breaking records for new home sales.