Oct. 13 (Bloomberg) -- The biggest decline in U.S. gasoline-station receipts ever recorded led to an unexpected drop in retail sales last month that masked gains elsewhere.

Sales fell 0.4 percent following a 0.1 percent increase in August, the Commerce Department said today in Washington. Excluding service stations, purchases climbed 0.6 percent, up from 0.2 percent in August, as consumers spent more on clothing, building materials and furniture. Retreating energy prices also depressed import prices, the Labor Department reported.

The figures bear out the Federal Reserve's predictions that the expansion will survive a housing slump and perhaps pick up in coming months as gasoline prices retreat. Treasury notes weakened and the dollar advanced as traders speculated that the numbers diminish the chances the central bank will reduce interest rates in coming months.

``The consumer is showing an extreme amount of resilience,'' said Anthony Chan, chief economist at JP Morgan Private Client Services in New York. ``It shows housing will not cripple the consumer. I see nothing to suggest the Fed will move away from its status quo.''

Sales excluding autos, gasoline and building materials, which the government uses to calculate gross domestic product figures for consumer spending, increased 0.8 percent in September, the most since January. The gain was twice as much as in August. The government uses data from other sources to calculate the contribution from the three excluded categories.

Consumer Confidence

A separate report from the University of Michigan showed consumer confidence picked up this month. The college's index of consumer sentiment climbed to 92.3, from 85.4 in September.

``You're going to see some slowing, but on balance the U.S. consumer is still healthy and still spending money,'' Jeffrey Immelt, chief executive officer of General Electric Co., said in a conference call today.

The yield on the 10-year Treasury note rose about 3 basis points to 4.80 percent as of 9:52 a.m. in New York and the dollar strengthened against the euro and yen. The Standard & Poor's 500 Index was little changed in the minutes after the market opened.

``You can't judge a book by its cover,'' said Brian Wesbury, chief economist at First Trust Advisors in Chicago, referring to the decline in overall retail sales.

Cheaper energy prices resulted in a 2.1 percent decline in the cost of imported goods, the Labor Department said. Excluding petroleum, the price index rose 0.1 percent, after a 0.5 percent advance in August. A further report from the Commerce Department showed business inventories rose in August as companies sought to keep enough goods on hand to meet demand.

Economists' Estimates

Economists expected retail sales to rise 0.2 percent, after a previously reported 0.2 percent gain in August, according to the median of 72 forecasts in a Bloomberg News survey. Estimates ranged from a decline of 0.7 percent to a gain of 0.8 percent.

Retail sales account for almost half of all consumer spending, which in turn represents about 70 percent of the economy. Spending has slowed after rising in the first quarter at the fastest rate since the third quarter of 2003.

Sales excluding autos fell 0.5 percent in September after a 0.2 percent rise. No change was forecast by economists.

Auto Sales

Sales at automobile dealerships and parts stores were unchanged last month after a 0.4 percent decline in August.

General Motors Corp., the world's largest automaker, is hoping to spur demand by offering interest-free loans and cash rebates on some 2006 and 2007 full-size and mid-size pickups and sport-utility vehicles. Ford Motor Co. and DaimlerChrysler AG's Chrysler unit also announced discounts and low-interest financing to lure buyers.

Filling station sales slumped 9.3 percent in September, the largest since record-keeping began in 1992, after a 1.3 percent drop the prior month. The average price of a gallon of regular gasoline fell to $2.25 on Oct. 11, the lowest since Feb. 28, according to the American Automobile Association. Prices have declined 19 percent since the end of August.

Cheaper gasoline gave consumers an extra $70 million in September compared with a year earlier, according to Stamford, Connecticut-based Archstone Consulting.

Electronics Sales

Stores selling building materials and garden supplies showed a 0.6 percent increase in sales for a second month in September. Sales of electronics and appliances rose 0.2 percent after a 0.1 percent gain the month before.

Purchases at non-store retailers, which include online and catalog sales, increased 1.1 percent in September after falling 0.2 percent the month before. Sales at department stores increased 1 percent after no change.

Shoppers snapped up clothing, shoes, computers and books, helping drive a better-than-expected 3.8 percent gain in September sales at stores open at least a year, the New York- based International Council of Shopping Centers, whose number includes results from 57 U.S. chains, reported Oct. 5.

September same-store sales at discount chain Target Corp. rose 6.7 percent, while Federated Department Stores Inc., the owner of Bloomingdale's, Macy's, and Lord & Taylor stores, reported a 6.2 percent increase.

The data suggest housing has yet to take a big bite out of consumer spending. Fed Bank of Dallas President Richard Fisher said this week that ``it's important not to over-fixate on housing'' because ``the rest of the economy is running on all pistons.''

Labor Market

A healthy labor market is sustaining consumer spending. The unemployment rate fell to 4.6 percent last month, matching a five-year low, and workers' average hourly earnings rose 4 percent from September 2005, matching the biggest gain in five years, the Labor Department said Oct. 6.

An index of same-store sales for the November-December holiday period will rise 3 percent from a year earlier, according to a forecast from the International Council of Shopping Centers.

``No matter how you parse the holiday forecast data, the message seems clear -- it is on track for one of the best seasons in the last few years,'' said Michael Niemira, chief economist at the group.

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

Last Updated: October 13, 2006 10:06 EDT