NEW YORK (CNNMoney.com) -- Even though gas prices have retreated from their summer surge, the National Retail Federation said Tuesday that it still expects this year's holiday sales growth to fall short of last year's increase.

The trade group forecasts holiday sales for the November-December shopping period to increase 5 percent over last year, bringing holiday spending to $457.4 billion.

In comparison, holiday sales in 2005 rose 6.1 percent to $435.6 billion, the group said.

"Consumers have faced a number of economic challenges this year and have taken them in stride," NRF chief economist Rosalind Wells said in a statement. "Although sales gains will not be as robust as last year, retailers can still expect above-average holiday sales growth."

The winter holiday season accounts for one-fifth of total annual retail industry sales. The two-month period can account for about half of retailers' annual profit.

The NRF last year reformulated how it accounts for retail sales. It broadened its retail universe to include food and beverage stores, building materials, health and personal care stores in addition to sales at discounters, department stores, grocery stores, and other specialty stores.

Excluding the change, the group's forecast was below target in 2001, overshot the mark in 2002 but was within striking range for the other years going back to 1999.

If gas prices continue to fall, the group estimates that shoppers will have wiggle room in their wallets to spend more freely in the months ahead.

Indeed, value-priced chains like Wal-Mart and Target are highly vulnerable during periods of gas price inflation because of their low-to-moderate-income clientele.

Last month, Wal-Mart (Charts) - the world's largest retailer - reported August same-store sales, or sales at its stores open at least a year, rose 2.4 percent. Rival Target' (Charts)s same-store sales rose 3.1 percent, but fell short of analysts' forecast.

Sales in other discretionary areas such as apparel and furniture, have also softened recently. Gap (Charts), the No. 1 apparel retailer, logged a steep 7 percent drop in its comparable sales last month, while home furnishing chain Pier 1 (Charts)'s sales tumbled 9.1 percent.

Wal-Mart Stores CEO Eduardo Castro-Wright told an industry gathering earlier this month that the retailer was preparing to go deeper with discounts heading into the holiday season in a bid to boost customer traffic and offset lost sales from higher gas prices.

However, some economists caution that while the drop in gas prices is clearly a plus for consumer spending, energy costs, including gasoline, typically represent only about 7 to 8 percent of the household budget.

"It's easy to overdo the gas price effect," said Scott Hoyt, economist with Economy.com. Instead, Hoyt said he's increasingly worried about the cooldown in the housing market and its impact on consumer spending.

"Housing has a more serious consequence on spending patterns because slowing housing activity has an adverse effect on household wealth and mortgage equity withdrawals," he said. "With a cooling housing market, consumers have less cash to pull from their homes to spend elsewhere."

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