Outlook is bullish on holiday buying

It may cost hundreds of dollars more to stay warm this winter. American workers haven't seen much of a pay raise this year. And a record number of consumers have just finished filing for bankruptcy.

But these economic dark clouds are not expected to rain or snow on Americans' holiday spending, which gets off to a well-publicized start Friday.

Economists project that holiday spending will grow a healthy 5 or 6 percent, down slightly from last year, when it grew by 6.7 percent. In fact, with energy prices falling faster than expected, some economists are now revising upward their growth forecasts for the end of 2005. And the annual shopping blitz should be strong enough to provide the economy with momentum into next year.

"The consumers will do their part and ensure the expansion keeps going," says Mark Zandi, chief economist at Moody's Economy.com.

Some of the spending defies economic theory, says Jay McIntosh, director of retail and consumer products at a Chicago branch of the accounting firm Ernst & Young. Yes, Americans will be paying more to stay warm. But, he says, "It's become part of American life to spend heavily on the holidays. It's really more emotional than rational."

Many will be inspired this season by early bargains. Already, many retailers are offering sales they would usually spring on consumers within two weeks of Christmas. Wal-Mart, the nation's largest retailer, has said it will match any other retailer's prices. "On Black Friday, the bottom may fall out," says Richard Feinberg, director of the Purdue University Retail Institute and a professor of consumer sciences. "Retailers are selling more cheaply and sooner than they want to."

The weather may also help retailers. On Wednesday, a brisk cold front dropped temperatures below freezing in the East. Snow began blanketing parts of the Midwest. Retail experts hope this puts consumers in the proper mind-set to begin their holiday buying.

"We think Mother Nature is right in sync with retailers," says Paul Walsh, senior vice president of Planalytics, a weather service that specializes in the weather's impact on consumers. "When it's cold, consumers get the whole Christmas spirit going."

Indeed, that's happening at Phat Fashions in New York, says Bernt Ullmann, president of the company. "I am a happy camper this morning," he says on a day that started with the thermometer at 27 degrees F. "With the weather cooperating, retailers are going to be very aggressive at promoting business."

But even when it was warmer in September and October, retail sales were stronger than expected. The healthy sales, combined with falling gasoline prices, prompted the National Retail Federation (NRF) this week to increase its growth estimate for holiday sales from 5 to 6 percent.

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