NEW YORK (Bloomberg) — US holiday sales will fall more than forecast after recession fears kept shoppers from spending in the last weekend before Christmas, a retail trade group said.

Same-store sales in November and December may drop as much as two percent, the International Council of Shopping Centers said yesterday, more than the previously projected one percent. That would make it the worst Christmas sales season in at least four decades.

As US shoppers have grappled with a recession, tightening credit and growing unemployment, retailers including Macy's Inc. and AnnTaylor Stores Corp. have responded with steepened mark-downs. That may erode profit margins in the fourth quarter, the most important of the year for retailers.

"Retailers definitely were already in a bad position headed into the holiday, obviously, and the clock is ticking," Linda Tsai, a retail analyst at MKM Partners LLC, said yesterday in a phone interview. "Retailers know that post-Christmas they're going to have to mark things down anyway, so why not get a head start?"

The US economy shrank in the third quarter at a 0.5 percent annual pace, the worst since 2001, the Commerce Department said yesterday. Consumer spending fell the most in almost three decades and forecasters project an even deeper slump in the final three months of this year.

"This year especially, I think I have to be more careful," said Magaly Torrez, 30, while shopping December 20 at the Atlantic Terminal mall in Brooklyn, New York. "We have to buy just the necessities for the house and the kids." The mother of two said she'll shop for essentials at the after-Christmas sales "if we have any money left".

Sales at stores open at least a year declined 0.6 percent in the seven days through December 20 from a year earlier, the ICSC and Goldman Sachs Group Inc., said yesterday in a joint statement. November sales fell a record 2.7 percent. The ICSC looks at results from about 40 chains.

Same-store sales for November and December combined may decrease 1.5 percent to 2 percent, ICSC chief economist Michael Niemira wrote in an e-mail. That would be largest drop since at least 1969, when the New York-based trade group started tracking data. December sales may fall one percent "or slightly more", the ICSC said. Sales increased 2.6 percent from the previous week as people finished their shopping, the council said.

The Standard & Poor's 500 Retailing Index shed 33 percent this year before today, with only two of its 27 companies gaining. The index doesn't include Wal-Mart Stores Inc., the world's largest retailer. Macy's slid 37 cents, or four percent, to $8.98.

Last weekend had the lowest US shopper turnout in at least six years, according to a survey by America's Research Group. Thirty-nine percent of consumers shopped last weekend, the Charleston, South Carolina-based organisation said yesterday, citing a telephone survey of 1,000 consumers conducted December 20 and 21. More than two-thirds of shoppers went to Wal-Mart. "A number of major names, such as Macy's, are in trouble over the long run and we will undoubtedly see more retail bankruptcies in the New Year," Britt Beemer, founder of America's Research Group, said in a statement.

Winter storms also may have kept some people home. Last week was the snowiest pre-Christmas week in a more than a decade, according to Scott Bernhardt, operating chief of Planalytics Inc., a Wayne, Pennsylvania-based weather consulting firm.