Spending Rises, But Katrina May Slow Economic Growth

Purchases of new cars and goods from the nation's big chain stores drove up consumer spending by 1 percent in July, but observers worry that the fallout from Hurricane Katrina may put the brakes on the nation's economy.

While spending was up in July, savings was down. A small, 0.3 percent increase in incomes in July, combined with generous spending, pushed down the personal savings level to a historic low, the Associated Press reported. The rate was negative 0.6 percent, which is the lowest since 1959, when the government began keeping records. The negative number means consumers used their savings to cover their spending in July.

Merchants, including Costco Wholesale Corp., J.C. Penney Co. Inc., Kohl's Corp. and Nordstrom Inc., reported strong sales in August despite the high gas prices.

Ken Perkins, president of RetailMetrics LLC, a research firm in Swampscott, Mass., told the AP that 68 percent of the retailers that reported August results beat Wall Street expectations. “I am a little surprised about the strength. This was a difficult month given the hot weather and the psychological and financial impact of rising energy prices."

In other economic news, the Labor Department said that the number of Americans filing new claims for unemployment benefits rose by 3,000 last week. That amounts to a seven-week high of 320,000. In the weeks ahead, laid-off workers affected by Hurricane Katrina will start filing claims, pushing the numbers up significantly.

Katrina has already resulted in gas prices of more than $3 a gallon, and economists are therefore scaling down their predictions of economic growth for this quarter since less money will be available for spending. Action Economics, for example, lowered its forecast for third quarter growth from 4.6 percent to 3.8 percent, MarketWatch reported.

"Economic growth remains solid, although the impact of Hurricane Katrina remains a major wildcard,” said Augustine Faucher, an economist for Economy.com.

The impact of Katrina is not known, but some economists worry that it will slow the steady pace of economic gains.

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