Slow spending to slam retailers

NEW YORK (CNNMoney.com) -- Retail sales in 2008 will suffer their weakest pace of growth in six years as Americans struggle with rising unemployment, worsening housing and credit market conditions and higher food and energy costs in the months ahead., according to an industry forecast released Monday.

The National Retail Federation (NRF), in its annual economic outlook, said it expects full-year sales this year to grow 3.5 percent, the slowest increase since 2002 when sales grew 3 percent.

"Consumers will be under financial stress from high energy costs, the fallout from the housing slump, and sluggish employment and income growth," said NRF chief economist Rosalind Wells.

"Shoppers will seek to pay down debt, spend more in line with income growth, and approach discretionary purchases with more restraint," she said.

Wells said the constant speculation about whether the economy is heading into or already in a recession also negatively impacts consumer sentiment.

"It makes consumers nervous. Recession isn't a sure thing but we know that they're already feeling the slow growth in the economy," she said.

She said retailers across the board, from luxury to online sellers, will feel the pressure as more practical consumers trade down in prices.

"In 2008, the challenges will be formidable for everyone," she said.

While the first-half of the year will be sluggish, Wells expects a sales pickup in the third and fourth quarters.

The fourth quarter is a critical period for the industry since it includes the holiday shopping months of November and December. Those two months account for as much as half of merchants' annual profits and sales.

"We expect interest rate cuts and perhaps a fiscal stimulus package [this year] to boost the economy in the second half," Wells said.