U.S. Retailers See Weak Growth This Holiday Season

The Grinch is not stealing Christmas, but the outlook this holiday season is less jolly than last year. In fact, the 2007 holiday sales season is expected to represent the slowest holiday sales growth in five years, according to the National Retail Federation.

With the American consumer facing the countercurrents of a housing slump, a credit crisis, high gas prices, and now-growing uncertainty of the job market, the retail industry organization lowered its outlook for the 2007 holiday sales season.

In its widely-watched holiday forecast, the NRF projected that holiday-related buying will total around $474.5 billion. While that level is a healthy amount of spending, the total represents just a 4% increase beyond 2006 levels, when the industry rang up $456.2 billion in sales, and it falls below the ten-year average of 4.8% growth.

The percentage change is key because holiday sales between the months of November and December represent around 20% of overall industry sales for the year. The total figures are drawn up based on retail sales figures provided by the Commerce Department. They exclude auto sales and gas receipts.

NRF Chief Economist Rosalind Wells says that consumers "will be forced to be more prudent with their holiday spending" during this "challenging holiday season." The primary drag on consumers' pocketbooks are the housing market and current credit crunch, Wells says.

That is not to say that Americans won't spend generously during the holiday season. Employment and wages, the two linchpins drivers of spending, are still fairly solid.

What the NRF finds worrisome is the fact that the rate of growth is slowing beyond where it has been for the past seven years. The consumer is slowing.

Before anyone starts playing the Grinch, keep in mind that many retail executives have reported that their expectations for the holidays are far more optimistic than government figures (like the ones that the NRF forecast is based on) represent.

Earlier this week, consumer electronics giant Best Buy increased its holiday forecast and yearly earnings based on what it sees as the consumers' willingness to spend on big ticket items this Christmas. We may have to wait until Christmas morning to see which retailers and consumers will be getting gifts and which will be receiving lumps of coal.