The Sparmax AC-100 is a starter level piston compressor comparable to the Iwata Sprintjet in price, power and feature. Because it lacks an auto-on-off switch, it runs constantly. It should be power enough for most precision or detail work in modeling, but lacks some of the convenient features. The pressure reading can drop instantly when you pull the airbrush trigger, but should not be excessively. A drop of 3 psi or less is acceptable.
Like Don asked, how much did the pressure droped? If it drops after a few seconds, it indicates a pressure leaks. The leak could be from improper hookup or from a worn compressor. I suspect the former. Even if the AC-100 runs constantly, it will take many years of high usage to wear it out.
Since you have a local Sparmax store, why don't you take it to the service department and have them check it out for you.
I went to the Sparmax website today and found it completely changed. It seems to have been bought out by another company. It has a lot more emphasis on medical equipments (hopefully good) and cosmetics (usually means high price and low quality). It will be interesting to see how it evolves.