U.S. retail sales fell during September as a weak job market and the credit crunch weighed on consumers.

Retail sales dived by 1.2% last month, the U.S. Commerce Department said today.

It was a broad decrease and the third drop in a row. Sales in August decreased 0.4%, revised down from an originally estimated 0.3% decline. July sales fell 0.6%.

Economists expected a 0.7% drop in sales during September. The 1.2% drop was the biggest since 1.4% in August 2005.

Consumer spending is a big part of the U.S. economy. It makes up about 70% of gross domestic product.

Today’s report showed automobile and parts sales plunged by 3.8% in September. August sales increased 1.7%.

Sales of all retailers except auto and parts dealers dropped in September by 0.6%. Economists expected a 0.3% decrease.

September gasoline station sales inched 0.1% higher last month. Stripping away sales at gas stations, demand at all other retailers dropped 1.3% in September.

Excluding auto sales and gas station sales, all other retailers saw sales decline 0.7% in September.

U.S. producer prices decline

Separately, falling energy prices triggered a second-straight large drop in U.S. wholesale prices last month, a government report showed.

The producer price index for finished goods fell 0.4% on a seasonally adjusted basis in September, the Labor Department said today after falling 0.9% in August.

Last month’s drop was in line with economist forecasts.

However the PPI was up 8.7% from September 2007, reflecting big increases in the spring when energy prices approached record highs.

The core PPI advanced 0.4% last month compared to August — double Wall Street forecasts — and increased 4% from a year ago, the highest annual rate since February 1991.