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Spending spree could cool

Experts see retail sales slowing down in 2005.

By MARK ALBRIGHT
Published January 17, 2005

NEW YORK - The holiday shopping season might have been the best since 1999, but the fizz is about gone from retailers' short-lived champagne toasts.

"Consumer spending is about to downshift," said Rosalind Wells, chief economist of the National Retail Federation. "This is going to be a tough year because the consumer may be tapped out."

Plus the election year government stimuli that put more cash in people's pockets - ultra-low interest rates and tax cuts - are going bye-bye.

Wells predicts general merchandise spending will settle down to a 3.5 percent gain in 2005. That's almost half the pace of the 6.7 percent gain in 2004. Virtually all of the gain would be consumed by inflation. Her downbeat assessment brought general agreement from other experts and industry leaders gathered here for their annual convention.

"I'm a little cautious right now about how consumer spending is going to hold up," said Richard Hastings, a retail economist with Variant Research Corp. in Boca Raton. "Gas and energy prices can be incredibly volatile."

The experts have been wrong before. Most missed the last-minute shopping surge that put the two-month postelection holiday season over the top.

But while consumer confidence recovered at the end of the year, the Federal Reserve increased interest rates five times in 2004 and is expected to keep it up. That would make mortgage refinancing pricier. The dollar is getting weaker while foreign investors weigh whether to continue pouring money into a country with rising trade and spending deficits. Energy prices stabilized for the holiday, but higher prices for gasoline and utilities have taken a bite out of lower- and middle-class discretionary income.

Also experts see employment and income rising only slightly in 2005.

If Wells' forecast holds up, general merchandise sales would have their worst year since the economic slowdown of 2001.

[Last modified January 17, 2005, 19:45:06]