The U.S. housing slump and credit- market rout are reverberating through the economy, according to two reports that strengthen the case for an interest-rate cut next week.

The figures, showing less-than-forecast increases in retail sales and industrial production, add to the sense of urgency surrounding the Sept. 18 meeting of Federal Reserve policy makers, analysts said. Three Fed officials said this week that risks to the six-year expansion are growing, and economists expect the benchmark rate will be lowered by at least a quarter point.

``Today's numbers confirm that the economy is weakening,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``I don't think there is any debate about whether the Fed will cut next week. The only issue is how much.''

The 0.3 percent increase in sales during August followed a revised 0.5 percent gain in July, the Commerce Department said today in Washington. Purchases excluding automobiles unexpectedly fell 0.4 percent. Production gained 0.2 percent, with factory output declining for the first time since February.

While a report from the University of Michigan and Reuters Group Plc showed consumer confidence increased, their sentiment index remained near the lowest level in a year. Treasury notes rallied after the retail sales and production reports, before losing the gains.

Behravesh, who accurately predicted the industrial production figure, forecasts the central bank will reduce its benchmark rate by a quarter point next week to 5 percent. Two reductions will follow by year-end, he said.

Spending Picture

Retail sales, which account for almost half of all consumer spending, were projected to rise 0.5 percent after an originally reported 0.3 percent increase in July, according to the median estimate in a Bloomberg News survey of economists.

``The consumer is pulling back a bit,'' said Peter Kretzmer, a senior economist at Banc of America Securities LLC in New York. ``Maybe some of the issues in financial markets and housing are starting to limit the upside'' in spending.

A separate report from the Labor Department showed the price of goods imported into the U.S. unexpectedly fell 0.3 percent in August as oil and natural gas costs dropped. The decline, the first since January, provides a check on inflation that may prove to be temporary.

Building Materials, Clothes

Declines in purchases at building material merchants, clothing stores and service stations restrained total sales last month, the report from Commerce showed. Sales at furniture an electronics stores improved last month.

Receipts at automobile dealerships and parts stores rose 2.8 percent last month, the most since July 2006. Sales at service stations dropped 2.4 percent, the most since October, reflecting a decline in gasoline prices. Excluding autos and gasoline, sales dropped 0.1 percent, the first decline since April.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.1 percent, the smallest increase since April, after jumping 0.8 percent the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.

The yield on the 10-year Treasury note fell to as low as 4.40 percent today after the sales and production report. The yield was 4.46 percent at 4:47 p.m. in New York, little changed from late yesterday. The Dow Jones Industrial Average rose 17.6 points, or .13 percent, to 13442.52.

Jobs, Wages

Even as Americans lose confidence in the economy, gains in wages have so far prevented a collapse in spending, which makes up more than two-thirds of the economy. Hourly earnings were up 3.9 percent on average in August from last year, according to figures from the Labor Department.

That may help take some of the sting out of a drop in hiring. Payrolls fell by 4,000 in August, the first decline in four years.

``Most of the underlying fundamentals of the U.S. economy are pretty good,'' Rick Wagoner, General Motors Corp.'s chief executive officer, said in an interview. Detroit-based GM is the largest U.S. automaker.

Early evidence suggests spending isn't deteriorating further this month. Retail sales at stores open at least a year during the seven days ended Sept. 8 rose the most in five weeks as consumers bought back-to-school clothing and supplies, according to the International Council of Shopping Centers and UBS Securities LLC. Consumers are spending at a ``moderate pace,'' the trade group said Sept. 11.

Housing Woes

Falling home values and the decline in payrolls signal the housing recession may wear down consumers in coming months, economist said.

The Fed will probably cut its benchmark target rate by a quarter percentage point to 5.00 when they meet Sept. 18, based on the median forecast of economists surveyed by Bloomberg. Some businesses are calling for a bigger reduction to revive demand.

``A significant rate cut of 50 points would be helpful,'' said GM's Wagoner. ``A rate cut would certainly do a lot to shore up confidence'' and ``help avert a potential continued downslide in the U.S. economy.''

Consumer spending will probably grow at a 2.25 percent average annual pace in the final six months of the year, compared with a 2.55 percent rate from January through June, based on the median in a Bloomberg survey of economists Aug. 30 to Sept. 7. Quarterly gains averaged 3.7 percent in the last decade.

Audi AG, Volkswagen AG's luxury brand, said U.S. sales will decline in the fourth quarter, in part because competitors will offer more incentives to spur sales.

``We need to batten down the hatches, so to speak,'' Johan de Nysschen, Audi's U.S. chief, said in a Sept. 12 interview. ``We think it's going to be stormy for a while.''