The sharp drop in consumer spending is largely the result of mounting job losses – with unemployment filings surging to 516,000 this week – and higher lending standards at banks.

“What you are seeing now is the turmoil in the credit and funding markets playing out into the consumer sector,” Kevin Flanagan, fixed income strategist, global wealth management at Morgan Stanley, told Reuters.

The sales drop marks the fourth consecutive monthly decline, as well as the first retrenchment since the first since 1992. Retailers are now hoping for a miracle as the holiday shopping season – the bread and butter of the retail industry – pokes its head around the corner.

But all indications say that won’t happen. In the past month, retailers have gone bankrupt, posted sharp losses, lowered forecasts and announced to plans to cut costs as much as possible.

• Tweeter Home Entertainment Group, Inc. (TWTRQ) is toast, announcing a “permanent entire company closing” early this month. 
• Circuit City Stores Inc. (CC) is unplugging 155 of its 566 stores across the country after filing for Chapter 11 bankruptcy protection.
• Nordstrom Inc. (JWN), Best Buy Co., Inc. (BBY), Wal-Mart Stores, Inc. (WMT) and Amazon.com Inc. (AMZN) all lowered forecasts.

Also, consumer confidence is dangerously close to the 28-year low set in June, making a turnaround unlikely.

The Reuters/University of Michigan preliminary index, a measure of consumer sentiment, clocked in at 57.9 for November. June’s reading of 56.4 was the lowest since 1980.

And with consumer spending driving nearly two-thirds of the U.S. economy, that spells major trouble for the retail industry beyond the holiday season.

We won’t know for months whether we’re officially in a recession, but these fresh stats – and the ones that will follow until the fourth quarter closes – almost assuredly indicate we are.