Before our eyes, and in spite of fixes to the international financial system, we are witnessing an epic demise of the American consumer. For the month of September, retail sales fell 1.2%, registering the largest sales drop in three years and the third consecutive monthly decline. The decline was lead by auto sales (down 3.8%), furniture (down 2.3%), and clothing (down 2.3%). The result was double the consensus estimate and brought the annual retail sales growth into negative territory with a 1% decline. Additional insight is provided by Philippa Dunne and Doug Henwood of the Liscio Report. Based on their surveys of sales tax receipts, the situation is deteriorating quickly. A few of their contacts remarked that tax receipts are "currently falling more sharply than they have in prior recessions (and from already recessionary levels), and comparisons continue to be to the 1990-91 recession, not 2001's more mild slump." Another interesting observation is how growth in the International Council of Shopping Centers' sales categories have changed since retail sales peaked in 2006. Luxury stores have gone from year-over-year comparable store sales growth of nearly 7% to a negative 11% reading for September -- a swing of nearly 18%. Department and apparel stores have shown similar shifts. Meanwhile, discount stores and wholesalers remain buoyant. Obviously, a great consumer retrenchment is underway. What's worrying is that we still don't know how the recent market selloff affected consumer spending. Based on work by the ISI Group in New York, things are likely to get much worse as we enter the critical holiday shopping season. If stocks stay at currently depressed levels, the market component of consumers' wealth would be down nearly 36% year-over-year. When combined with an estimated 7.4% fall in house prices, this could drive total consumer net worth down by a record 13.5% for the fourth quarter. Such a hit to consumer wealth would cut total economic growth by 1.3%. Such a decline would help drive unemployment from the current 6.1% reading to ISI's dour 8.5% estimate as consumer spending dries up further. Related reading: Iceland blames male ego for financial meltdown Some good news: Food prices on the decline Companies pull back tech spending Can infrastructure projects ease coming recession?