Dec. 1 (Bloomberg) -- Retail sales in Germany, Europe's largest economy, unexpectedly rose for a second month in three in October, a sign that consumer spending may recover after stagnating in the third quarter.

Sales rose 1.6 percent from September, when they fell a revised 0.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected sales to be unchanged, according to the median of 20 forecasts in a Bloomberg survey. From a year earlier, retail sales declined 3.7 percent.

German consumer confidence rose in November as consumers became more willing to spend before the Christmas holidays, a report by GfK market research company showed last week. Consumer spending in Germany, the largest part of the economy, hasn't increased in more than a year.

``We need to wait and see how consumer confidence continues to develop over coming months,'' said Jan Amrit Poser, chief economist at Bank Sarasin & Cie. in Zurich. ``Consumption is certainly not the growth driver in Germany at the moment and probably won't be for another while.''

From a year earlier, sales at grocery, beverage and tobacco retailers declined 3.7 percent and revenue at department stores fell 4 percent, the statistics office said.

The German economy expanded 0.1 percent in the third quarter from the previous three months, the weakest pace in more than a year, partly because of stalling household demand. The 50 percent increase in oil costs this year has left consumers with less money to spend at the stores.

Job Cuts

``Consumers have been hit especially hard by oil prices,'' said Janwillem Acket, chief economist at Julius Baer Holding AG in Zurich. ``They're already under pressure because of the labor situation in Germany.''

To help counter rising costs that threaten to erode earnings, companies have been forced to eliminate jobs. KarstadtQuelle, the country's largest department store operator, and General Motors Corp, the world's largest carmaker, have announced the reduction of as many as 15,500 jobs in Germany.

The number of Germans out of work probably rose for a 10th month, keeping the unemployment rate at a five-year high of 10.7 percent, according to the median of 36 forecasts in a Bloomberg survey. Germany's Federal Labor Agency is scheduled to release the report tomorrow at 9:55 a.m.

Companies' reluctance to hire workers was among the main reasons why the International Monetary Fund on Nov. 2 cut its growth forecast for Germany. Gross domestic product may expand 1.9 percent this year and 1.5 percent in 2005, instead of 2 percent and 1.8 percent respectively, the IMF said.

Confidence Index

To consumers, the question is ``whether their job is safe or not,'' said Klaus Wuebbenhorst, chief executive officer of GfK market research institute. ``We'll probably have a modest growth in consumption this year and there's hope for a slight increase in 2005.''

GfK's index of consumer confidence, which aims to forecast household spending one month in advance, rose last month, the Nuremberg-based company said Nov. 26. The sub-indexes gauging consumers' expectations for the economic development and their own income slipped last month.

To help spur economic growth and revive spending in the euro region, the European Central Bank may keep interest rates on a six- decade low of 2 percent at its meeting tomorrow, according to all 33 economists surveyed by Bloomberg.

The ECB's 18-member governing council is scheduled to announce its rate decision at 1:45 p.m. in Frankfurt.

To contact the reporter for this story: Simone Meier in Frankfurt at smeier@bloomberg.net.

Last Updated: December 1, 2004 02:08 EST