Oct. 13 (Bloomberg) -- Lower gasoline prices encouraged Americans to spend more on clothing, furniture and building materials, and propelled consumer confidence to the highest level in more than a year.

The largest decline ever in gas-station receipts pushed overall retail sales down 0.4 percent in September, the Commerce Department said in Washington. Excluding service stations, purchases climbed 0.6 percent, three times the gain in August. The University of Michigan's consumer sentiment index jumped to 92.3 in October from 85.4 the prior month.

The pickup in sales supports the Federal Reserve's predictions that the expansion will survive a housing slump and pick up in coming months as gasoline prices retreat. Treasury notes weakened and the dollar rallied as traders speculated that the numbers diminish the chances the central bank will reduce interest rates early next year.

``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.''

The yield on the 10-year Treasury note rose 3 basis points to 4.80 percent as of 5 p.m. in New York, and the dollar strengthened against the euro and yen. U.S. stocks extended a three-week rally, sending the Dow Jones Industrial Average to a record.

Immelt Optimistic

``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.

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.

Retail sales account for almost half of all consumer spending, which in turn represents about 70 percent of the world's largest economy. The Michigan sentiment reading was the highest since July 2005.

Futures trading on the Chicago Board of Trade indicates the Fed will keep its benchmark lending rate at 5.25 percent through at least March. Bets on a May reduction have been whittled down.

``The consumer is by no means impaired,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland. ``The energy-price issue has been huge the past few years, and so for the near-term that's good news.''

Lower Import Prices

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. Another report from the Commerce Department showed business inventories rose in August as companies sought to keep enough goods on hand to meet demand.

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.

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

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.

Service Stations

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.

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.

Same-Store Sales

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.''

Jobs

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 17:09 EDT