Sales were down 3.6 per cent, compared to the same month a year ago. If the effects of higher prices are stripped out, sales volume contracted by an eye-watering 8.5 per cent, according to the Retail Sales Index released by the Department of Statistics (DOS) yesterday.

This is the biggest fall since May 2002, said HSBC economist Robert Prior-Wandesforde. It may also be a sign that the economy as a whole will suffer a contraction in the last quarter, and hints of further pain next year.

DBS economist Irvin Seah said: 'September's retail numbers were largely boosted by the Formula One event and this extra boost was missing in October.

'Against the backdrop of a slowing economy and September's financial upheaval, we expected consumer spending to fall into negative territory.'

While department stores, recreational goods and book sellers reported increased turnover of between 1.9 and 3.1 per cent, sales of food and beverages, furniture, toiletries, apparel and footwear all declined between 3.4 per cent and 6 per cent.

The watches and jewellery sector enjoyed higher receipts of 11.8 per cent in October, after falling between 6.2 per cent and 8.1 per cent the month before.

The two biggest declines came from sales of motor vehicles, down 20 per cent, and telecommunications gear and computers, which dropped 17.5 per cent.

These dragged down the average, putting total retail sales in October at about $2.7 billion, down from $2.9 billion the month before, said the DOS.

Mr Seah sees the danger signal: 'This is definitely an early sign that the fourth quarter will see some contraction.'

Citigroup's vice-president of Asia Pacific economics and market analysis Kit Wei Zheng agreed: 'This, together with weak October industrial production numbers, suggests a very weak start to the fourth quarter, with a growing likelihood of another year-on-year real GDP (gross domestic product) contraction.'

Last month's Singapore Purchasing Managers' Index (PMI) fell to a record low of 44.3 points, down 1.5 from October's figure, hit by declining levels in new export orders, production output and employment.

The Government said last month that the economy slipped into recession in the third quarter, shrinking 6.8 per cent from the previous quarter after contracting 5.3 per cent in the second. It expects 2.5 per cent growth this year and economic activity next year to range between a 1 per cent contraction and 2 per cent growth.

Mr Kit is more pessimistic: 'Anybody expecting positive growth is not very realistic. We're looking at a growth of minus 1.2 per cent for 2009, and the provisional number for the fourth quarter is 0.1 per cent.'

Mr Seah added: 'Growth will be weakest in the first quarter of next year and we will see unemployment peaking at 3.6 per cent at the end of next year.'

Compared with September this year, October's retail sales slid 6.8 per cent.

Mr Kit said: 'Month on month, it's quite clear that the momentum is pointing down. That's what really matters.'

Mr Prior-Wandesforde of HSBC said: 'If consumer spending is zero next year, or slightly negative, it's not inconceivable you could have GDP at minus 3 per cent for 2009, down from our current forecast of minus 1.2 per cent"

michtay@sph.com.sg