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.
''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.
In other economic news, the Labor Department said the number of Americans filing new claims for jobless 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 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.
