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Katrina Hurts August Industrial Output

Industrial output (search) rose only slightly in August as Hurricane Katrina (search) severely cut back production of petroleum and chemicals along the Gulf Coast.

The Federal Reserve (search) reported Wednesday that industrial output rose a tiny 0.1 percent last month — far below economists' expectations — as Katrina, which struck the Gulf Coast on Aug. 28, forced sharp cutbacks in oil and natural gas extraction in the Gulf of Mexico and also depressed output at refineries and chemical plants in the areas hit by the hurricane.

Without the adverse effects of the hurricane, industrial output would have been 0.3 percentage point higher, the Fed estimated.

The report showed that output at factories rose by 0.3 percent while output at utilities dropped by 0.5 percent and production in mining, a category that includes oil and gas production, fell by 0.6 percent.

The Fed estimated that hurricane-related shutdowns along the Gulf Coast contributed to a 1.1 percent drop in the production of chemicals and a 0.9 percent decline in petroleum production.

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 retail 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 (search) 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.