Along with the retail sales figures, reports of increasingly cheery consumers underscored the trend toward recovery in Europe’s largest economy.

Economists credited greater optimism about the overall economic outlook for the rise in consumer confidence.

Consumers were more upbeat about their personal outlooks as efforts to explain the benefits of German Chancellor Gerhard Schroeder’s controversial program of labor reforms started to pay off, according to the consumer confidence report.

It said: "The negative impact of the debate surrounding the Hartz IV labor market reforms appears to have lessened slightly, and concerns regarding the ramifications of the hike in energy prices seem to have eased."

There were also signs that rising confidence is translating into growing sales for retailers.

Sales beat expectations of a decline by climbing about 1% in August from July, government figures showed on Friday.

Consumer spending, which accounts for more than half of the German economy, has been stagnate for much of the year as Germans worried about a stubbornly high jobless rate elected to save, instead of spend, their hard-earned euros.

Some analysts argue that greater consumer spending is needed to shore up overall economic growth — despite a surge in exports that drove the German economy to its fastest expansion in more than three years in the second quarter of this year.

In a separate development, demand for products from Germany’s machinery industry continued to rise sharply in August, the VDMA industry association said this week.