American retail sales fell at their fastest rate for almost two decades last month providing new evidence that the world’s biggest economy is weakening far faster than expected.

While Wall Street had expected a decline in retail sales in October, the 2.8 per cent fall was far bigger than the 2.1 per cent that economists had forecast. The October drop also exceeds the 2.65 per cent fall of November 2001, just after the US terrorist attacks.

Sales of cars were decimated. Over the past three months, new motor sales have fallen by 34 per cent, a slide triggered when banks withdrew from unsecured lending. Yesterday’s retail numbers show that the American consumer has effectively stopped all discretionary spending.

Consumer demand, of which retail sales are a key part, is of critical importance to the US economy, accounting for two thirds of growth.

But Americans have cut back on spending as they grow more fearful of joining the 6.5 per cent of the US workforce that is out of a job. About 516,000 Americans are losing their jobs every week. The unemployment rate is expected to rise sharply in the coming months, especially after it emerged yesterday that Citigroup, the biggest bank in the world, is cutting 10,000 jobs.

Yesterday’s Citigroup redundancies will bring the total number of sackings to 60,000 at the bank.

The Dow Jones industrial average closed down 337.94 points to 8,497.31 on the poor retail sales data, prompting Ben Bernanke, chairman of the Federal Reserve, to comment at a conference in Frankfurt that the economy remained under “severe strain”.

He sought to reassure the markets by insisting that central banks were ready to cut rates together to help the global economy to recover.

The Fed is next scheduled to meet to discuss interest rates on December 16.

Wall Street was also dismayed after Abercrombie & Fitch, the clothes retailer, and JCPenney, the department store chain, both announced that profits would come in below expectations as retailers head into the key US holiday shopping season that could be among the slowest on record.

Traders were also unnerved by news from Sun Microsystems that it will get rid of up to 6,000 jobs, or about 18 per cent of global staff, as part of a huge restructuring plan. Nokia, the maker of mobile phone handsets, also said that the global economic slowdown would weigh on its sales next year.

Wall Street was also anxious over a row emerging in Washington about whether America’s car manufacturers should be bailed out with federal aid. Republicans on Capitol Hill oppose plans by Barack Obama, the President-elect and Nancy Pelosi, the Democrat Speaker of the House, to use American taxpayers’ money to rescue the big three car companies – General Motors, Ford and Chrylser – whose industry employs about 3 million people across the country.

Wall Street is scared that, should the aid be delayed, General Motors, which last week said it would run out of money by Christmas, will go bust.

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