WASHINGTON (Bloomberg) - Retail sales probably rose in October for a fourth month and factory production rebounded, adding to evidence the US recovery picked up at the start of the fourth quarter, economists said before reports this week.

A projected 0.7 percent gain in purchases is based on the median estimate of 67 economists surveyed by Bloomberg News before a Commerce Department report tomorrow. Other figures may show inflation was contained.

"It's a good sign for the economic recovery when you see consumers spending more consistently," said Jonathan Basile, an economist at Credit Suisse in New York. "That's been supported by better job growth, better income growth and fatter paycheques."

Combined with earlier data showing bigger-than-projected gains in payrolls and manufacturing, the reports may boost confidence the US rebound will be sustained. At the same time, figures on retail prices this week will probably reinforce Federal Reserve Chairman Ben S. Bernanke's concern that too-low inflation is raising the risk of an outright drop in costs that will hurt the expansion.

The last two months of the year are typically the biggest US shopping season and hiring time for retailers like JC Penney Co. and Wal-Mart Stores Inc. The National Retail Federation has forecast November-December holiday sales will rise by 2.3 percent from a year ago, the most since 2006.

JC Penney, the third-largest US department-store company, last week said third-quarter profit rose 63 percent. Fourth-quarter sales at stores open at least a year will rise three percent to four percent, the Plano, Texas-based company said in a November 12 statement, adding that the holiday shopping environment will "remain highly promotional".

Investors have driven up retailer shares this year on signs spending was starting to pick up. The Standard & Poor's Supercomposite Retailing Index has gained 18 percent since December 31, compared with a 7.5 percent advance for the S&P 500.

Shares have also rallied over the past two months in anticipation of more action by the Fed to spur growth. Policy makers this month announced a plan to buy an additional $600 billion of Treasuries through June with the aim of reducing joblessness and averting a drop in prices.

Manufacturing remains a mainstay of the recovery. Production at factories, mines and utilities climbed 0.3 percent in October after a 0.2 percent decrease the previous month, the first drop in more than a year, economists projected a Nov. 16 report from the Fed will show. Rising exports and gains in business investment may keep factory assembly lines running.

The New York Fed's Empire State manufacturing index tomorrow and the Philadelphia Fed's general economic index November 18 will show factories kept expanding this month, according to economists surveyed.

A gauge of the outlook for the US economy over the next three to six months probably increased 0.5 percent in October, the biggest gain since May, according to the survey median before a November 18 report from the New York-based Conference Board, a private research group. The index of US leading indicators has climbed in 16 of the past 18 months.

Other reports are projected to show that inflation is decelerating after the world's largest economy grew at a two percent or less annual pace over the past two quarters, less than the Fed's long-term goal.

The cost of living rose 0.3 percent in October after a 0.1 percent increase the prior month as fuel prices climbed, according to the median forecast of economist surveyed before a Labour Department report November 17.

Excluding food and fuel costs, a measure similar to the Fed's preferred gauge, so-called core prices rose 0.1 percent last month and were up 0.7 percent from October 2009, the survey showed. It would be the smallest year-over-year advance since 1961.

"In the most extreme case, very low inflation can morph into deflation," Mr. Bernanke said in an editorial published this month by the Washington Post. That can "contribute to long periods of economic stagnation."

President Barack Obama, whose Democratic Party this month lost control of the House of Representatives to Republicans, took up the warning last week, saying deflation poses a "huge danger" to the US. "We have to be mindful of those dangers going forward," he told reporters in Seoul.

Leaders from Germany to Brazil have been critical of the Fed's latest plan because they say it has weakened the dollar and fueled a rise in asset prices in emerging markets.

Another threat to sustained growth in the US is the housing market. Construction of new homes declined to a 600,000 annual pace in October from a 610,000 rate the previous month, the survey showed ahead of a November 17 Commerce Department report.