Nov. 12 (Bloomberg) -- American consumers increased their purchases of clothing, accessories and furniture in October and were more confident this month, suggesting job gains may help the holiday shopping season.

Retail sales increased 0.2 percent after a 1.6 percent rise, the Commerce Department said in Washington. Purchases excluding automobiles rose 0.9 percent, the biggest jump since May, after a 0.8 percent September gain that was more than first estimated.

``With job growth picking up and wage and salary gains accelerating, all the pieces are in place for the consumer to keep spending,'' said Tim McGee, chief economist at U.S. Trust Corp. in New York. ``It looks really good.''

Consumer confidence improved in a University of Michigan survey, rising to 95.5 this month from 91.7 in October. A report this month showed the U.S. added the most jobs since March in October and gasoline prices fell last week to $2.05 a gallon, the cheapest in a month. With more money to spend and less concern about energy bills, consumers may help drive the economy this quarter. Some economists raised growth forecasts today.

``Consumer confidence appears to be pretty solid,'' said Jeff Lind, director of the Nebraska Furniture Mart store in Kansas City, Kansas. Nebraska Furniture Mart, a unit of billionaire Warren Buffett's Berkshire Hathaway Inc., has other stores in Omaha, Nebraska, and the outskirts of Des Moines, Iowa.

Growth Outlook

After the report, economists at Morgan Stanley raised their fourth-quarter consumer spending forecast to 3.3 percent, a percentage point higher than their previous estimate. They forecast a 3.9 percent pace of economic growth in the fourth quarter. Citigroup Global Markets Inc. increased its growth estimate for the final quarter to 3.3 percent from 3.1 percent.

The Federal Reserve raised its benchmark interest rate a quarter point to 2 percent on Nov. 10 and said the labor market improved and the economy is showing ``moderate'' growth. Another rate increase may be in store next month, and the benchmark 10- year Treasury note headed for its third straight weekly decline.

``Policy makers continued to see economic conditions as likely to warrant a further reduction in policy accommodation in coming quarters,'' minutes released today from the Fed's policy meeting on Sept. 21 said. Still, ``policy actions would need to be increasingly keyed to incoming data.''

For today, the 10-year note rose as its yield neared a three- month high, attracting investors. The note rose 15/32 point, pushing its yield down 6 basis points to 4.19 percent as of 2:37 p.m. in Washington.

Consumer Expectations

Business inventories in September showed the smallest increase in more than a year as companies remain cautious about adding to stockpiles, a separate report today showed. Inventories increased 0.1 percent during the month after a 0.7 percent August rise, the Commerce Department said.

The university's measure of consumer confidence rose more than the 93.1 median forecast in a Bloomberg News survey. The current conditions index, which reflects Americans' perception of their financial situation and whether it's a good time to buy big- ticket items, rose to 106.2 from 104 in October. The expectations index, based on optimism about the next one to five years, rose to 88.7 from 83.8 last month.

``The confidence numbers confirm the strong job growth numbers we saw,'' said Milton Ezrati, senior economic strategist at Lord Abbett & Co. in Jersey City, New Jersey, in an interview. While the retail figures ``are an overall positive,'' he said he expects economic growth to slow to 3.5 percent next year.

Expectations

Economists expected retail sales would rise 0.1 percent to $341.6 billion last month after a previously reported gain of 1.5 percent in September, based on the median of 76 estimates. Sales excluding autos were expected to rise 0.6 percent to $262.5 billion after a previously reported 0.6 percent gain.

Sales at clothing and accessory stores jumped 3 percent, the biggest increase in two years, after a 1 percent increase. Retail sales account for almost half of all consumer spending, which in turn accounts for about two-thirds of the economy.

A jump in retail gasoline prices last month underpinned sales. Receipts at service stations rose 4.3 percent last month, the most since May, after a 0.5 percent gain in September. The average price of all grades of gasoline rose 13 cents a gallon to $2.04 last month and reached as high as $2.08.

General Merchandise

Sales at general merchandise stores, which include department stores, rose 0.9 percent last month after rising 1.3 percent in September. Sales at department stores rose 0.5 percent after rising 1 percent.

Target Corp., the No. 2 discount retailer in the U.S., reported yesterday that sales at Target stores open at least a year rose 4.5 percent in the third quarter, Which ended last month. The Minneapolis-based company is second only to Wal-Mart Stores Inc., and its customers typically have higher incomes.

``There continues to be a significant dichotomy between purchases by high-income households and low-income households that are more affected by higher energy costs,'' said Lynn Reaser, chief economist at Banc of America Capital Management. ``While consumer spending is still showing reasonable growth, we are looking for some moderation in the fourth quarter.''

Sales at electronics and appliance stores fell 0.1 percent, while furniture sales gained 0.3 percent. Purchases at sporting goods, hobby, book and music outlets were unchanged, while sales at food and beverage stores rose 0.4 percent. Receipts at restaurants and drinking places increased 1 percent, matching the previous month's rise.

``We saw good demand last quarter,'' said Kevin Kennedy, chief executive officer at JDS Uniphase Corp., in an interview from Mountain View, California. JDS Uniphase, the world's largest maker of parts for fiber-optic networks, makes optical components for high-definition televisions. ``I think this is a wave that will continue for the next several years.''

Automakers, Building Materials

Stores that sell building materials and garden supplies had a 1.1 percent drop in sales last month, the biggest decline since May, after a 1.1 percent increase in September.

Sales at automobile dealerships and parts stores dropped 2.2 percent last month after rising 4.3 percent. Cars and light trucks were sold at an annual rate of 17 million vehicles in October, down 2.9 percent from September, according to industry figures released earlier this month. Auto sales last quarter were the strongest in a year.

U.S. automakers accounted for the brunt of the drop in sales as Asian producers took a record share of the market last month. General Motors Corp., the world's largest automaker, reduced its North American production plan for this quarter to 1.27 million cars and trucks, down 10,000 vehicles.

Shopper Polls

Twenty-two percent of shoppers polled earlier this month said they would spend less than they previously thought during the holidays due to the cost of gasoline, up from 12 percent in September, said Britt Beemer, chairman of Americas Research Group, a market research firm in Charleston, South Carolina, in an interview Nov. 10.

Compared with their purchases a year earlier, 32 percent said they would spend more and 20 percent said they planned to spend less, the report showed.

``There are some real challenges out there,'' Beemer said. ``The biggest issue I see is that there is no new, hot item in any category.''

Gross domestic product, or the amount of goods and services produced by the economy, will probably expand at a 3.5 percent annual pace this quarter, compared with 3.7 percent in the previous three months, according to a separate poll of economists taken by Bloomberg News this month. Consumer spending may rise 3 percent, down from a third-quarter pace of 4.6 percent that was the fastest in a year, the survey showed.

To contact the reporter on this story: Carlos Torres in Washington ctorres2@bloomberg.net.

Last Updated: November 12, 2004 14:43 EST