Dec. 23 (Bloomberg) -- U.S. 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 2 percent, the International Council of Shopping Centers said today, more than the previously projected 1 percent decline. That would make it the worst Christmas sales season in at least four decades.

As U.S. shoppers have grappled with a recession, tightening credit and growing unemployment, retailers including Macy’s Inc. and AnnTaylor Stores Corp. have responded with steepened markdowns. 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 today 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 U.S. economy shrank in the third quarter at a 0.5 percent annual pace, the worst since 2001, the Commerce Department said today. Consumer spending fell the most in almost three decades and forecasters project an even deeper slump in the final three months of this year.

‘More Careful’

“This year especially, I think I have to be more careful,” said Magaly Torrez, 30, while shopping Dec. 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 Dec. 20 from a year earlier, the ICSC and Goldman Sachs Group Inc. said today 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 1 percent “or slightly more,” the ICSC said. Sales increased 2.6 percent from the previous week as people finished their shopping, the council said.

Retail Index

The Standard & Poor’s 500 Retailing Index has shed 34 percent this year, with only two of its 27 companies gaining. The index doesn’t include Wal-Mart Stores Inc., the world’s largest retailer, which fell 70 cents to $55.29 at 4:05 p.m. in New York Stock Exchange composite trading. Macy’s slid 64 cents, or 6.8 percent, to $8.71.

Last weekend had the lowest U.S. 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 organization said today, citing a telephone survey of 1,000 consumers conducted Dec. 20 and 21. More than two-thirds of shoppers went to Wal-Mart.

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

ShopperTrak RCT Corp. said U.S. customer traffic on Dec. 20, also known as “Super Saturday,” fell 17 percent from the corresponding day a year earlier, Dec. 22, 2007. Foot traffic was hurt by the economy, inclement weather and a calendar shift, the Chicago-based research firm said today in a statement. Sales for the day rose 0.5 percent.

Many mall stores offered markdowns of 50 percent to 70 percent, discounts usually found at post-Christmas clearance sales, Amy Noblin, a retail analyst at Pali Capital Inc. in Larkspur, California, wrote yesterday in a report. AnnTaylor’s Loft chain sent an e-mail today announcing it had started after- holiday sales and offering discounts as deep as 70 percent.

“At this point in the season, you just need to move the inventory off the shelves and convert it to cash,” Adrienne Tennant, a retail analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia, told Bloomberg Television today.

Online spending in the U.S. rose to $677 million last weekend, almost twice the total spent a year earlier on the final weekend before Christmas, ComScore Inc. reported.

For the first 51 days of the November-December holiday shopping season, Internet spending fell 1 percent to $24.7 billion, the Reston, Virginia-based researcher said today in a statement.

To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.

Last Updated: December 23, 2008 16:18 EST