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Amid expectations of dropping home prices, foreclosures, job cuts and concerns about toy safety, Americans are bracing for their gloomiest holiday season in years.

October 1, 2007 By Rob Lever Washington – Amid expectations of dropping home prices, foreclosures, job cuts and concerns about toy safety, Americans are bracing for their gloomiest holiday season in years. The struggling economy, tighter credit, high energy prices and the calamity in the property market are just part of the bleak picture as the year-end holidays approach. Consumers are expected to be cautious in their holiday spending plans; gifts and toys are under close scrutiny because of numerous safety recalls, which may also lead to shortages of popular children’s items, say analysts. Not surprisingly, US consumer confidence has slumped to a two-year low amid weakening business and job market conditions, according to a Conference Board survey. The business research company said its consumer confidence index fell to 99.8, from a revised 105.6 in August. The outlook is troubling at the approach of the Christmas season, when consumer spending – about two-thirds of US economic activity – is the greatest. “We could have a less-than-stellar holiday shopping season, to say the least,” economist Joel Naroff of Naroff Economic Advisors said yesterday. “If that indeed does happen I think we’re looking at a real potential for a recession.” John Challenger, chief executive of the consultancy Challenger, Gray & Christmas, said that with retailers bracing for sluggish sales, hiring would be scaled back. “With new reports showing that consumer spending and confidence are dropping along with home values, retailers are undoubtedly getting more skittish about holiday sales prospects,” Challenger said. “If the strength of the dollar continues to erode and the housing market worsens going into the holiday season, retailers may have no choice but to limit seasonal hiring. Some may even be forced to cut workers in order to preserve profit margins.” The National Retail Federation (NRF) predicted sales would rise 4 percent, the slowest pace since 2002. “With the weak housing market and current credit crunch, consumers will be forced to be more prudent with their holiday spending,” said NRF chief economist Rosalind Wells. For many retailers the holidays can mean a make-or-break period, accounting for a large portion of revenue and an even bigger share of profits. Many of the joys of shopping have been dimmed by concerns about safety and recalls of a number of Chinese-made products. Consumers have been rattled by scares involving popular toy brands such as Barbie in recent months. And because of that, some items will be in short supply. Jane Hoffer, the president of consulting firm Prescient Applied Intelligence, said parents might stay away from toys with paint and magnets. But because of the lead time needed for manufacturing and shipping, some items in high demand might be hard to find. “That means there won’t be enough products on the shelves,” Hoffer said. The US economy shed 4 000 jobs in August in the first contraction in four years, another indication that consumer spending may be dented. Moreover, the “wealth effect” on the economy from rising property prices in recent years is now turning negative, with potentially serious economic implications. Some analysts say home prices are likely to fall 15 percent or more from the peak of the housing boom. This hurts home builders and sellers, and makes it hard for consumers to draw out cash in home equity loans, as they did during the boom. – AFP