The Federal Reserve reported US industrial production edged up 0.1 percent in August, despite severe damage to oil, gas and refining industries in the Gulf Coast region from Hurricane Katrina.

The central bank said Katrina's devastation on the Gulf Coast took away about 0.3 percentage points from output, mainly in the areas of oil and gas production and the refining and petrochemical industries.

The hurricane contributed to a drop of 1.1 percent in the production of chemicals and a drop of 0.9 percent in the output of petroleum and coal products.

"This production figure emphasizes that the US economy had solid underlying momentum heading into month-end," said economist Sherry Cooper at BMO Nesbitt Burns.

"This will provide some offset to the drag caused by the hurricane's direct damage and flooding, which, along with the massive amounts of money being deployed in the affected area, suggest that the ultimate impact of Katrina on GDP might prove more fleeting than first thought."

Meanwhile, data on retail sales - compiled ahead of the hurricane - showed a 2.1 percent slump in August, largely due to a plunge in auto sales. Excluding autos, sales overall rose 1.0 percent on the month, the Commerce Department said.

Because auto sales have seen wild fluctuations due to incentives from manufacturers, analysts said they focused on sales of other items, which appeared robust.

Retail sales are up 7.9 percent in the past 12 months. Excluding autos, sales are up 9.4 percent and excluding gasoline, are up 6.0 percent.

"These results cast more cold water on the notion that if non-discretionary spending on energy swells, it must crimp discretionary spending. It hasn't," said Ken Mayland, chief economist for ClearView Economics. "Consumer spending has continued to advance strongly" even as petrol prices have doubled over the past two years, he said.

"The retail sales report is a little bit misleading," said Ethan Harris at Lehman Brothers.

"We knew we would have a very weak number because of a collapse in auto sales after two big months in a row and the incentives kind of stop working ... But if you look at the rest of the report, every single major component was up. It was very broad-based growth across many components."

"These two reports continue to suggest that the US economy was on fairly solid ground going into the shock effect of Hurricane Katrina," said Derek Holt, economist at RBC Financial Group.

"Retail sales excluding autos and gas held up strongly, while industrial production advanced albeit at a less than expected pace. Both sets of numbers, however, are likely to weaken when the next round of monthly data comes in."

John Silvia at Wachovia Securities said that consumer spending - the backbone of the US economy, representing two-thirds of activity - appears to be holding up despite record prices for gasoline.

"It appears as if when consumers are faced with higher gasoline prices, they continue to spend their money," Silvia said.

"They view the gasoline thing as temporary, and that's important because it didn't change their overall pace of spending. And that's a different kind of psychology. If it was a permanent increase in gasoline prices, then you would have expected consumers to make a more permanent adjustment downward in their spending and saving rate."

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