Worst retail sales in three years

Sagging auto sales pace September downturn, as consumers pare back on all but health needs and gasoline.

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NEW YORK (CNNMoney.com) -- Retail sales suffered their biggest drop in three years last month, as American households reined in spending amid a tough job market, the financial crisis and falling home values.

The Commerce Department reported Wednesday that retail sales fell 1.2% in September, nearly double the 0.7% drop expected by economists. The last time the measure fell this sharply was in August 2005 with 1.4% decline.

Retail sales have fallen for the third month in a row, the first time that has happened according to government data going back to 1992. Consumer spending accounts for nearly 70% of the economy.

Auto sales

A steep 3.8% decline in auto purchases helped depress the overall sales for the month.

Even when volatile auto sales were stripped from the report, sales fell 0.6%, three times the 0.2% decrease economists had predicted.

The weak report shows that consumers cut down on everything except healthcare products and gas, according to Scott Hoyt, senior director of consumer economics at Moody's economy.com.

"The numbers are pretty terrible. Consumers were clearly not spending," Hoyt said.

Particularly troubling is the sharp drop in retail sales from the same time a year earlier. The last time that happened was October 2002 and, prior to that, in 1991, he said.

"This report is very clearly consistent with a recession story," Hoyt said, who added that even gasoline retailers could see their sales decline in October.

Sales fell across a wide spectrum of retail categories. For September, furniture and home furnishings reported a 2.3% drop, electronics retailers sales declined by 1.5%, and department store sales fell by 1.5%.

The August retail sales report was revised to a weaker 0.4% decline.  To top of page

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