Fears grow as consumers pull back further

New figures show that holiday retail sales were worse than many expected.

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By Parija B. Kavilanz, CNNMoney.com senior writer


NEW YORK (CNNMoney.com) -- A new round of economic data released Tuesday show that holiday sales were even worse than many experts had expected - adding to fears that 2008 could be an even more challenging year for retailers.

Sales in November and December rose only 3 percent - softer than its initial forecast of a 4 percent increase, the National Retail Federation (NRF) announced.

By comparison, holiday sales in 2006 rose 4.6 percent over the previous year.

Holiday sales figures are closely watched by economists: The two months account for as much as 50 percent of retailers' annual profits and sales, and consumer spending drives two-thirds of the nation's economy.

The 3 percent increase would also be the slowest pace of growth since 2002, when holiday sales rose just 1.3 percent, according to the NRF.

On Tuesday, the U.S. Commerce Department said total sales fell 0.4 percent in December after gaining 1 percent in November. The drop signals that many Americans, struggling with the housing downturn, higher gas prices and tighter credit conditions, curtailed their spending.

The monthly decline - weaker than forecast - was the biggest since June, when sales fell 0.8 percent. Economists surveyed by Briefing.com had expected retail sales to remain unchanged for the month. November sales, which were revised on Tuesday, were originally reported to have risen 1.2 percent.

Stripping out volatile auto sales, retail sales also fell a weaker-than-expected 0.4 percent versus a revised gain of 1.7 percent in November. November sales were originally reported to have increased 1.8 percent.

Economists, on average, had forecast a monthly decline of 0.1 percent - minus auto purchases.

The weak holiday sales figures are likely to fan fears about recession.

"I don't think this report alone can make the point that we're in full-blown recession," said Michael Niemira, chief economist with the International Council of Shopping Centers. "Certainly the economy is on that slippery slope. When you end the year weak and start the year weak, the concern is that we may not be able to get off that slope."

Adding to that fear, the NRF said Monday that it expects retail sales to grow 3.5 percent in 2008 - the weakest pace of growth in six years.

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

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

The government report showed that the worst performers were clothing stores, which registered a 2 percent sales decline last month, and electronics sales, which fell 1.9 percent. Sales at department stores fell 0.4 percent.

Elsewhere, sales at gasoline stations fell 1.7 percent and building materials sales plunged 2.9 percent.

However, sellers of food and beverages logged a 0.7 percent increase and furniture stores also escaped the broad downturn to post a 0.6 percent sales gain last month.  To top of page

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