SALES at US retailers dropped in September as mounting job losses, plunging home prices and the deepening credit crisis shook consumers.

Purchases fell 0.7 percent, following a 0.3 percent decline the prior month, according to the median estimate in a Bloomberg survey.

The stock-market meltdown last week may further undermine already fragile consumer confidence, prompting cutbacks on non-essentials such as new cars and vacations, which will deepen the economic slump.

Falling oil prices are the one bright spot, slowing inflation and giving the Federal Reserve leeway to keep cutting interest rates to unclog credit markets.

"The prospect of a consumer recession overlaid on a housing downturn and the worst financial crisis in modern times has sent a chill through business corridors," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.