U.S. retail sales dropped 2.1% in August, suggesting the American economy was slowing even before Hurricane Katrina delivered so much grief along the Gulf Coast, the Commerce Department reports.

While the drop in sales was the largest dip since the month following 9/11, the August sales figures are still twice what some analysts had forecast.

The major weakness came from a 12% decline in auto sales, which followed a 6.3% surge in July sales due to promotional employee discounts offered to the public by the Big Three North American auto companies.

August gas station sales were up 4.4%, due to higher gas prices, the Commerce Department said.

Without gas sales, retail sales would have fallen even more, by 2.8%, the department said.

Sales at clothing stores were flat last month, unable to show any improvement after July’s decline of 0.9%.

Sales at department stores posted a 0.3% increase after falling by 0.2% in July.

Sales related to household needs showed the only positive gains, with furniture stores enjoying a 0.9% increase, electronics and appliance stores 0.3% , and building materials and garden equipment 0.5%.

The Commerce Department said it had to estimate results from some retailers in its survey because of Hurricane Katrina, but expected the impact to be small, because the storm-affected region accounted for barely 1% of national sales.

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.

Central bank policy-makers are to meet on Tuesday to decide whether to raise U.S. borrowing costs for the 11th consecutive time, to 3.75%.

Wal-Mart Stores Inc., the world’s biggest retailer, on Friday reported strong demand for hurricane-related merchandise. It repeated its September forecast of 2% to 4% sales growth, but warned this was subject to revision because of oil prices and the hurricane.