Hotels in Washington, apparently feeling the pinch of a more budget-minded public, have seen nearly a 10 percent drop in business this year in what industry officials fear is a troubling reflection of a slowdown in tourism.

The decline in the visitors trade is also being felt by an array of car rental firms, restaurants, vendors and other small businesses that collectively form the area's largest private industry and second-largest employer after federal and local governments.

Much of the evidence suggests that the downturn began well before gas-price increases and the fear of recession began to take hold in many parts of the country this summer. If those factors further dampen spending, even tougher conditions could lie ahead for the tourist industry. Economists consider the industry to be particularly vulnerable in slow economic times as consumers curtail vacations and businesses cut back on out-of-towns meetings and conventions.

According to District tax officials, a total of 5.7 million rooms were rented by paying customers during the city's most recent fiscal year, a drop from 6.3 million rooms during the previous 12 months. The falloff is expected to translate into lower-than-expected occupancy- and sales-tax revenue for the District, despite hikes in both taxes during fiscal 1990.

"It's my job to get concerned about things like this, and I am concerned," said Mark Gripentrog, acting associate director of the agency responsible for District's tax policy. "I don't want to sound gloomy, but ... I think we're going to have problems the next couple of years."

In a more selective sampling of hotel occupancy rates regionwide, a survey of 35 hotels by the consulting firm Laventhol & Horwath showed a 5 percent decline through August. The company said room rates at the hotels -- located in Washington, suburban Maryland and Northern Virginia -- crept up an average of 3 percent. That is about half of the national inflation rate of 6.1 percent through August, meaning local hotel rates have actually fallen relative to the average cost of other goods and services.

The ripple effect of the slowdown has been felt at such upscale restaurants as the Palm, the venerable downtown Washington haunt of lawyers and lobbyists. Manager Thomas Jacomo said business has fallen between 10 percent and 15 percent since the beginning of the year. Even at that, he said, the restaurant was probably doing better than its competitors.

"This is going on all over the country, but it's unusual for Washington because we're supposed to be recession-proof," said Jacomo, whose restaurant is also a popular spot for convention-goers. "People just aren't spending money the way they used to."

The business downturn comes at a sensitive time for the local hotel industry, which has been "glutted" by the construction of hundreds of new rooms over the past three years, said Ford Thompson, a partner in Capitol Representation, an Alexandria firm that markets hotels to tour and meeting groups. The most vulnerable hotels, he said, are those along the Dulles airport corridor, where four hotels have opened in the past 18 months and where a new resort and conference center is slated to open in about three months.

"With the economy {souring} and the overbuilding, we're looking at a double crunch next year," Thompson said.

Even before higher gas prices took hold, the number of visitors to the area had been shrinking. The number of tourists at the Air and Space Museum -- typically the most popular exhibit on the Mall -- was down 9.1 percent through September, according to Smithsonian officials.

Attendance at the natural history museum was flat at 5.2 million while the American history museum showed a 5 percent increase to 4.7 million visitors.

Overall attendance has fallen by nearly 600,000 people, or roughly 3 percent, at the 22 Smithsonian museums and attractions that were open this year as well as last.

Smithsonian spokeswoman Madeleine Jacobs said summer tourism wasn't heavily affected by the increases in gas prices touched off by Iraq's invasion of Kuwait on Aug. 2.

But she said tourism turned down after the last two oil crises, in 1973 and 1979. "If gas prices stay high, we may see a {downward} blip {in attendance} next year," she said.