Oct. 14 (Bloomberg) -- Sales at U.S. retailers fell less than forecast in September after the Obama administration’s cash-for-clunkers program expired, signaling consumers are gaining confidence in the outlook for an economic recovery.

The 1.5 percent decrease followed a 2.2 percent gain the prior month, figures from the Commerce Department showed today in Washington. Sales excluding automobiles climbed 0.5 percent, more than projected. Gains in prices of goods imported into the U.S. slowed last month, a separate report showed.

Stocks climbed and Treasuries fell as the report eased concern that household purchases, which make up about 70 percent of the economy, would sag without government support. While gains in spending from food to furniture suggest consumers will help pull the nation out of recession, Federal Reserve policy makers say demand is likely to be curbed by further job losses.

“Consumers are a little less cautious and are spending again,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “We do need improvement in the labor market to get sustained gains in consumer spending. Everything we’re seeing is consistent with Fed expectations, with growth resuming and inflation still pretty tame.”

The Standard & Poor’s 500 Index rose 1.8 percent to close at a one-year high of 1,092.02 in New York, while the Dow Jones Industrial Average closed above 10,000 for the first time in a year. The yield on the 10-year Treasury note climbed to 3.42 percent as of 4:33 p.m., from 3.35 percent late yesterday.

Fed Concerns

“With the labor market still quite weak and income gains subdued, advances in consumption spending in the coming months likely will be muted,” Fed Vice Chairman Donald Kohn said yesterday in a speech to economists in St. Louis. He repeated that the Fed’s benchmark interest rate, now close to zero, will stay low for an “extended period.”

Fed policy makers last month weighed the risks of an anemic recovery where unused capacity leads to “subdued and potentially declining wage and price inflation,” according to the minutes of their Sept. 22-23 meeting released today in Washington.

Some members of the of the policy-making Federal Open Market Committee were open to boosting central bank purchases of mortgage-backed securities to stimulate the economy amid concerns the recovery may fade, the minutes showed.

Inventories Plunge

Another Commerce Department report showed inventories fell more than forecast in August as sales climbed, helping put firms in a position to increase orders in coming months. The 1.5 percent decrease in stockpiles, the biggest this year, was led by a plunge at auto dealers as the “cash-for-clunkers” plan revived sales.

Prices of imports increased 0.1 percent last month, the Labor Department said, after rising a revised 1.6 percent in August. Costs excluding fuel rose 0.6 percent, the most since July 2008, led by gains in metals.

Retail sales for September were projected to drop 2.1 percent after an originally reported 2.7 percent gain in August, according to the median estimate of 78 economists in a Bloomberg News survey. Forecasts ranged from declines of 0.6 percent to 4 percent.

Excluding automobiles, sales were forecast to increase 0.2 percent, according to the survey median. Sales at automobile dealerships and parts stores plunged 10 percent, the most since August 2005. Purchases in August jumped 7.8 percent.

‘Clunkers’ Plan

The government program allowing consumers to trade in older models for new, more fuel-efficient ones ended Aug. 24, translating into a 35 percent drop in auto sales last month, industry figures showed earlier this month. General Motors Co., Toyota Motor Corp. and Ford Motor Co. posted declines.

Outside of autos, only three of the other 12 categories showed a drop in sales last month, building on the broad gains seen in August when purchases climbed in every category except one.

Last month’s sales gains were led by furniture stores, which showed a 1.4 percent jump, the most since January 2007. Purchases increased 0.4 percent at department stores, 0.9 percent at grocery stores and 0.5 percent at clothing outlets.

“Consumers are replenishing and replacing in a careful way,” retail analyst Dana Telsey, founder of the Telsey Advisory Group in New York, said in an interview on Bloomberg Radio.

Influence on Growth

Excluding autos, gasoline and building materials -- the retail group the government uses to calculate gross domestic product figures for consumer spending -- sales increased 0.5 percent after rising 0.7 percent in August. The government uses data from other sources to calculate the contribution from the three categories excluded.

Shoppers are seeking discounts at retailers such as Kohl’s Corp., the fourth-largest U.S. department-store chain. The Menomonee Falls, Wisconsin-based company raised its profit forecast for the third quarter after comparable sales rose. Framingham, Massachusetts-based TJX Cos., owner of T.J. Maxx and Marshalls stores, also reported a gain.

“People will maintain more of a thrifty kind of approach to expenditures than they have in the past,” Arthur Blank, co- founder of Home Depot Inc., said in an Oct. 8 speech in Atlanta, where the largest home-improvement retailer is based. “It doesn’t mean they won’t spend their money. They’re just going to be more selective.”

Household purchases will grow at a 1 percent annual rate this quarter after rising at a 2.4 percent pace in the previous three months, according to the median forecast of 57 economists surveyed by Bloomberg News from Oct. 1 to Oct. 8.

The unemployment rate may exceed 10 percent by the first quarter of 2010, according to this month’s Bloomberg survey. Job losses accelerated in September to 263,000, and the unemployment rate rose to 9.8 percent.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

Last Updated: October 14, 2009 16:39 EDT