Oct. 12 (Bloomberg) -- Retail sales in the U.S. increased more than forecast in September, a sign consumers will help the economy avoid a recession even as the housing slump deepens.

The 0.6 percent increase followed a 0.3 percent gain the prior month, the Commerce Department said today in Washington. Purchases excluding automobiles rose 0.4 percent.

The report will ease concern the collapse in housing and decline in consumer confidence will cause spending, which accounts for more than two-thirds of the economy, to retrench. More jobs and rising wages will give Americans the means to weather lower home values and stricter lending rules.

``Consumers are just staying resilient in the face of economic difficulty,'' Ryan Reed, an economist at National City Corp. in Cleveland, Ohio, said before the report. ``Housing will remain a drag on the economy, but the labor market and equity- price increases are keeping consumer spending growing.'' Retail sales were projected to rise 0.2 percent, according to the median estimate in a Bloomberg News survey of 77 economists. Estimates ranged from a decline of 0.9 percent to a gain of 0.7 percent.

Prices paid to U.S. producers rose more a greater-than- forecast 1.1 percent in September as oil costs surged, a report from the Labor Department also showed. Outside of energy, wholesale prices rose less than projected.

Autos, Electronics

Increases in purchases of autos, electronics and groceries led last month's gain in retail sales.

Today's report showed sales at automobile dealerships and parts stores rose 1.2 percent after climbing 3.3 percent in August.

That contrasts with industry figures that showed sales of cars and light trucks posted an annual pace of 16.2 million units after 16.3 million units in August.

Sales at electronics and appliance stores rose 0.9 percent and purchases at food and beverage merchants increased 0.8 percent.

Americans also spent more to fill up their gasoline tanks. Filling station sales increased 2 percent in September after dropping 2.6 percent in August.

The figures also reflected the effects of the decline in the housing market. Furniture sales dropped 0.6 percent and building materials gained just 0.1 percent.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.3 percent, following little change the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.

Chain Stores

The report also reflected the weakness reported yesterday in sales at chain stores. Clothing sales dropped 0.4 percent and purchases at department stores fell 0.5 percent.

Industry results released yesterday for sales at stores open at least a year showed purchases cooled. The figures account for about 17 percent of total retail sales, which in turn make up almost half of all consumer spending.

Wal-Mart, the world's largest retailer, posted a 1.4 percent gain in September same-store sales, at the lower end of its forecast. Company officials cited softer demand for home goods and said consumers remained ``concerned with their finances, the cost of living and gas prices.''

Macy's Inc. and J.C. Penney Co. said sales declined. Nordstrom, among the few chains to post a gain, fell short of analysts' estimates.

Weather an Issue

``Unseasonable weather in large areas of the country and the well-chronicled issues affecting the housing market impacted our sales for the September period,'' J.C.Penney Chief Executive Officer Myron Ullman said in a statement yesterday.

The National Retail Federation has forecast 2007 holiday sales will grow at the slowest pace in five years.

Federal Reserve policy makers, who cut the benchmark interest rate on Sept. 18 to forestall an economic downturn, signaled they are in no hurry to reduce rates again because they aren't convinced the economic expansion is coming to an end, according to minutes released this week.

The economy will grow at an annual rate of 1.8 percent in the fourth quarter, 0.4 percentage point less than forecast last month, according to the median of 71 analysts participating in Bloomberg's monthly survey.

Even so, the probability of the U.S. avoiding recession is better than 50 percent as stock-market gains offset declines in home prices, former Fed Chairman Alan Greenspan said during a World Business Forum event in New York this week.

Employment growth so far has fueled increases in consumer spending. Payrolls grew by 110,000 in September, after an 89,000 gain in August that wiped out what was previously reported as the first drop in four years. Wage increases from a year earlier were the biggest since February.

Still, the protracted housing slump and credit squeeze will push companies to pare costs in coming months, suggesting hiring and consumer spending will slow, economists said.

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

Last Updated: October 12, 2007 08:39 EDT