Holiday retail sales expected to drop for second consecutive year

While economists say the recession may be over, the holiday shopping season is not expected to be all that jolly, according to a report released Tuesday.

Holiday sales in November and December this year are expected to decline 1 percent to $437.6 billion, compared with a 3.4 percent drop last year, when the industry saw its worst holiday season on record, according to the National Retail Federation.

"As the global economy continues to recover from the worst economic crisis most retailers have ever seen, Americans will focus primarily on practical gifts and shop on a budget this holiday season, NRF Chief Economist Rosalind Wells said in a release.

Continued job losses, pay cuts and record high unemployment are likely to translate in the retail industry's first consecutive holiday season sales decline on record.

Area retail analysts agree with the report and expect a dismal holiday shopping season when it comes to spending. John Melaniphy, founder of Chicago-based Melaniphy & Associates, says it will be a very "frugal holiday season."

This is the most important time of year for retailers.

The holiday period represents anywhere between 25 percent and 40 percent of the industry's annual sales and is make-or-break for some categories, such as jewelry shops, according to the NRF.

While many indications suggest the recession's worst part is over, continued uncertainty over the job market and home values will continue to cause shoppers to keep a tight hold on their pocketbooks.

The momentum in the stock market, better-than-expected sales in August are hopeful signs, but not enough to give shoppers a lot of Christmas cheer, according to the NRF.

Late last month, Federal Reserve Chairman Ben Bernanke said the recession was "very likely over," at least from a "technical perspective." But the economy is going to feel "very weak" for some time," he has said. In the past, consumer spending which typically accounts for 70 percent of the economy, has helped America pull out of the recession.