WASHINGTON (Reuters) - Sales at U.S. retailers suffered a record decline in October as fears of recession sapped spending, but part of the drop was due to slumping gasoline prices, which helped buoy consumer confidence this month.

The Commerce Department said on Friday that retail sales slumped 2.8 percent in October to a seasonally adjusted $363.7 billion, the largest decline since the department’s current methodology was adopted in 1992, as mounting unemployment hit shoppers’ appetites.

A separate Reuters/University of Michigan November survey of consumers showed that confidence unexpectedly rebounded from a record October drop as tumbling gas prices offset worries about the economy.

While lower gas prices were welcome, declines in a broad number of retail sales categories showed consumers were still on the defensive.

“What you are seeing now is the turmoil in the credit and funding markets playing out into the consumer sector,” said Kevin Flanagan, fixed income strategist, global wealth management at Morgan Stanley in Purchase, New York.

Economists polled by Reuters forecast a 2.0 percent fall in October retail sales as the escalating financial crisis took a toll on consumer. Retail sales last month were down 4.1 percent from a year ago.

Sales excluding autos fell a record 2.2 percent in October versus a forecast of a 1.2 percent decline.

Lower gasoline prices, as crude oil retreated sharply from a July peak around $147 a barrel, helped depress sales at gas stations by a record 12.7 percent in October. As a result, a closely watched core measure of retail sales excluding autos and gasoline fell 0.5 percent in October.

“Take out cars and gas, it’s a drop of half a percent. It’s not good, but it’s not horrific. This could have been worse; it’s encouraging that it wasn’t,” said David Resler, chief economist at Nomura Securities in New York.

The Reuters/University of Michigan Surveys of Consumers said its confidence index edged up to 57.9 in November from 57.6 in October. Despite the rise, sentiment remains at depressed levels, with the index below the lowest levels hit during the depths plumbed during the last two recessions.

“Lower gas prices and sizable discounts at retailers helped to slightly improve consumers’ assessments of current economic conditions, while higher unemployment and a deepening recession dimmed their expectations for future gains,” the Surveys of Consumers said in the report.

“You might have hoped, say gasoline was way, way down in price, that might free up money to spend on other stuff. But that didn’t happen, people still spent less on other stuff. So that’s not good,” said Nigel Gault, chief U.S. economist at Global Insight in Lexington, Massachusetts.

Lakshman Achuthan, managing director at the Economic Cycle Research Institute, a New York-based independent forecasting group, put it more bluntly: “Not only is no economic recovery on the horizon, but the economy is falling off a cliff at its fastest pace in at least six decades.

Pedestrians walk past a Banana Republic store along 5th Avenue in New York, May 11, 2008. REUTERS/Joshua Lott

Individual car makers have reported a collapse in sales since mid-September after auto-loan terms tightened sharply in the aftermath of investment bank Lehman Brothers failure.

The Commerce Department said motor vehicle and parts sales slide 5.5 percent in October after a 4.8 percent September fall. October’s performance for the category was the weakest since August 2005, when car sales were off 10.3 percent.

A separate report from the Labor Department showed U.S. import prices posted the largest monthly drop since 1988 in October as the cost of imported oil weighed for the third consecutive month.

Overall import prices declined 4.7 percent after falling by a revised 3.3 percent in September. But for the 12 months through October, import prices were still up 6.7 percent.

Petroleum prices tumbled 16.7 percent last month after falling a revised 10.2 percent the previous month.

The Commerce Department data showed that stocks of unsold goods at U.S. businesses unexpectedly fell a seasonally adjusted 0.2 percent in September.