updated 9/14/2005 9:10:49 AM ET 2005-09-14T13:10:49

Retail sales plunged in August by the largest amount in nearly four years, evidence that the economy was weakening even before Hurricane Katrina struck.

Major Market Indices

The Commerce Department reported Wednesday that total sales fell by 2.1 percent last month, double the decline that analysts had been expecting. The weakness came from a big 12 percent drop in sales of autos. Excluding autos, retail sales rose 1 percent, but much of that strength reflected a rise in gasoline prices.

Economists believe that Katrina, the worst natural disaster to hit the United States, could trim economic growth by a full percentage point in the second half of the year as soaring gasoline prices force consumers to cut back spending in other areas.

The 2.1 percent drop in total sales last month was the largest decline since a 2.9 percent plunge in November 2001, the period following the 2001 terrorist attacks.

The worry is that consumer confidence could be jolted this time around by soaring energy prices and an expected wave of Katrina-related job layoffs.

The Congressional Budget Office last week predicted that Katrina will reduce employment by 400,000 this year although it forecast that rebuilding needs in the devastated Gulf Coast area could increase economic activity next year.

The International Council of Shopping Centers reported Tuesday that sales at chain stores fell by 0.2 percent last week as higher gasoline prices forced cutbacks in other areas of spending.

The biggest increase in spending in August occurred at service stations, a 4.4 percent increase that reflected gasoline prices that have soared past $3 per gallon in many parts of the country.

Without the big jump in spending at gasoline stations, retail sales would have fallen an even bigger 2.8 percent last month as demand faltered in many sectors.

Sales at clothing stores were flat last month, unable to show any improvement after a sharp 0.9 percent decline in July.

Sales at department stores posted a modest 0.3 percent gain after having declined by 0.2 percent in July.

Furniture stores, reflecting the continued boom in the housing sector, posted a 0.9 percent increase in August, however, while sales at electronics and appliance stores rose by 0.3 percent.

The 12 percent decline in auto sales followed 6.3 percent surge in sales in July, reflecting attractive sales incentives being offered to unload a stockpile of unsold cars.

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