Industry sales in March plunged 17 percent from the same period a year earlier, according to data released this week from NPD Group, a market research firm. The downturn marked a big reversal from recent months, when the industry posted healthy growth despite the deteriorating economy. Indeed, the March sales decline was steep enough to cancel out the growth the industry posted in the first two months of the year.

The industry's falling fortunes left observers forecasting tough times ahead.

"The economy's a key driver," said Norm Conley, CEO of JAG Advisors, a money management firm based in St. Louis that owns shares of game publisher Activision-Blizzard. "With prolonged, continued economic weakness "... it's going to be hard for growth rates to avoid falling."

Until last month, the video game industry had been one of the bright spots in an otherwise bleak economy. Last year, the industry enjoyed record growth as U.S. retail sales of games, game machines and accessories rose 19 percent to $18 billion.

Growth began to slow in the last several months of last year. But retail sales of video game products reached $5 billion in a month for the first time ever in December, thanks to 9 percent growth from December 2007. And for the first two months of this year, the industry was growing at an 11 percent annual rate.

That's what made the drop-off in March unexpected. The decline was pervasive: Accessory, software and hardware sales all dropped by at least 15 percent.

NPD analyst Anita Frazier noted that some unusual factors may have weighed on the month. Easter occurred in March last year but April this year, so some holiday sales this year may not have shown up in NPD's tally. And March 2008's total included sales of the then just-released "Mario Super Smash Bros.: Brawl," which was one of last year's top-selling games.

But even allowing for those differences, Frazier sees troubling signs in this year's March sales. Hardware sales in particular were disappointing.

Microsoft's Xbox 360 was the only console to show an increase in sales compared with the same month last year.

Sales of hardware are a prerequisite for software and accessory sales. So a falloff in console sales in March is a bad sign, said Michael Pachter, a financial analyst who covers the video game industry for Wedbush Morgan Securities.

It gives "us less confidence about a reversal in software sales over the near term," he said.

The industry faces tough comparisons in coming months with a year ago, when retail sales were routinely growing at rates above 20 percent.