* Retail sales drop 0.6 pct in Aug vs 0.3 pct gain f'casts
* July retail sales revised lower to show 0.2 pct fall
* Falls across all states; food, household goods lead losses
* Aug trade surplus widens to A$989 mln vs A$875 mln f'casts (Adds economist comment, online sales data)
By Swati Pandey and Wayne Cole
SYDNEY, Oct 5 (Reuters) - Australian retailers suffered their worst decline in sales since early 2013 in August as debt-laden consumers tightened their purse strings, cutting back sharply on food, furniture and clothing, an outcome that bodes poorly for third-quarter economic growth.
Thursday's data from the Australian Bureau of Statistics (ABS) showed retail sales dropped 0.6 percent in August, confounding expectations for a 0.3 percent increase. July was also revised down to show a 0.2 percent fall.
The 0.8 percent slump in July and August is the biggest back-to-back fall since October 2010.
In response, the Australian dollar AUD=D4 skidded 0.4 percent to $0.7829, down from a one-week high of $0.7875 set on Wednesday.
Australia's retail sector had shown some signs of life earlier in the year, but that recovery was short-lived as sluggish wages and household incomes sapped spending power.
The data casts a shadow on the Reserve Bank of Australia's (RBA) forecasts for the A$1.7 trillion economy to accelerate at 3 percent over the next two years.
The RBA has long feared ballooning debt in Australia's red-hot property sector was pinching consumers' ability to spend elsewhere in the economy.
"On the face of it, this is not good news for third quarter GDP growth," said Michael Workman, a senior economist at CBA.
The sector takes in over A$300 billion annually and is the second biggest employer after healthcare.
"Though, it should be noted that a fall in sales this broad is very strange," he added. "We aren't hearing anything like this sort of weakness from our clients, and people are still spending on cars and services. It's just very odd."
The ABS figures showed falls across every single state, a vanishingly rare occurrence, with food, eating out and household goods leading the losses. Department stores did gain 0.7 percent, but that followed a sharp drop of 2.6 percent in July.
Indeed, Australia's biggest department store operator Myer MYR.AX this month posted its lowest annual profit since listing with sales down 2.7 percent for the year to July 29. ALL THE TIME
Not all is doom and gloom. The ABS's experimental estimates of online retail turnover jumped 6.3 percent in August and were rapidly catching up to last year's Christmas sales.
The online numbers are not yet included in the headline retail series.
A separate ABS survey of household spending this week showed Australians are shelling out more money on holidays, health insurance and school fees - none of which are reflected in the retail sales numbers.
The RBA has held policy rates at an all-time low 1.50 percent after last easing in August 2016 as it balances tepid inflation and slow wages growth against record high household debt. was slightly better news on the country's trade surplus which widened to $989 million in August, topping market forecasts of $875 million.
The weakness in retail was mirrored in the numbers with imports of consumer goods dropping 4 percent in the month.
Exports rose 0.5 percent thanks largely to a 10 percent rebound in iron ore, the single biggest earner, which helped offset falls in coal and gold.