WASHINGTON (AP) – Americans’ savings rate fell to an all-time low in July while manufacturing showed signs of slowing in August, worrisome economic news amid uncertainty over how much of Hurricane Katrina will hit the economy.

A group of economic reports on Thursday showed the economy was buffeted by high oil prices even before Katrina shut down production along the Gulf of Mexico earlier this week and sent the price of gasoline and other products soaring.

The Commerce Department reported that consumer spending rose by 1 percent in July, matching a strong June gain, as Americans streamed into auto showrooms to take advantage of sales enticements.

However, incomes rose by just 0.3 percent, not enough to cover the increased spending. As a result, the savings rate fell into negative territory at minus 0.6 percent, the lowest level on record.

That negative 0.6 percent meant that Americans did not have enough left over after paying their taxes to cover all of their spending in July. As a result, they dipped into savings stored up in prior months to cover the shortfall.

Big retailers reported Thursday that sales held up well in August even in the face of rising energy costs. But now with gasoline topping $3 per gallon in parts of the country because of Katrina-forced refinery shutdowns, the worry is that consumers will be forced to cut back on discretionary purchases, especially given their stretched family budgets and record low savings.

“The economy is going to be hit hard by Katrina, and it is going to be hardest on consumers who are already stretched thin,” said Mark Zandi, chief economist at Economy.com. “With the surge in gasoline and home heating oil prices, consumers will have a difficult choice to make between filling their gas tank or spending on other things.”

Another report showed that American manufacturers were feeling the adverse effects of higher energy costs even before Katrina hit.

The Institute of Supply Management’s manufacturing index declined to a weaker-than-expected 53.6 percent in August, down from July’s reading of 56.6 percent. While that level still indicated factories’ output would expand in coming months, manufacturing is about three times more sensitive to rising energy costs than the overall economy because manufacturing is so energy-intensive.

On Wall Street, the Dow Jones industrial average fell 21.97 points to close at 10,459.63 as consumers grappled with the disappointing economic reports and the latest news of Katrina’s damage.

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 to a seven-week high of 320,000. Those claims numbers are expected to rise significantly in the weeks ahead, as hurricane-damaged businesses lay off workers in Louisiana and other states.

The government also reported Thursday that construction spending was flat in July following a sharp 0.6 percent drop in June, giving a possible indication that one of the economy’s strongest sectors may be starting to slow under the impact of rising interest rates. The June decline, which was revised from an original estimate of a 0.3 percent drop, was the biggest setback since a 1.7 percent drop in January 2004.

Ian Shepherdson, chief U.S. economist for High Frequency Economics, another consulting firm, predicted construction would be one of the areas to see a boost in coming months, reflecting substantial rebuilding activity along Katrina’s path.

Still, overall, economists continued to lower their expectations for economic growth as the extent of the damage became known.

The government reported Wednesday that the gross domestic product, the broadest measure of the economy, grew at a solid 3.3 percent rate in the April-to-June quarter.

Before Katrina struck, economists had been forecasting that GDP growth in this quarter would come in at a sizzling rate well above 4 percent, with growth of around 4 percent in the final three months of the year.

But Zandi said he had revised his estimates lower to show growth at a rate of around 3.6 percent for the second half of the year.

—

On the Net:

Personal income and spending: http://www.bea.gov

Institute of Supply Management’s manufacturing index: http://www.napm.org

Construction spending: http://www.census.gov/constructionspending