Holiday retail outlook: more conservative

As he pumps $3.25-a-gallon gasoline into his taxi, Larmont Smith says the rising prices at the pump are eating into his profits, adding to the hours he has to work until he makes money. The added cost, he says, probably means he'll spend less on the holidays on his wife and three children.

"Everything costs more – the milk, the groceries," he explains. "I'm telling my wife now is the time to save, not spend."

To economists, Mr. Smith is probably the spirit of Christmas 2007 – a more conservative consumer. Dragged down by rising energy prices and falling home equity, Americans are no longer opening their wallets quite so readily. As a result, their spending is no longer pulling the economy forward the way it has for the past decade.

"The consumer has gone from being an engine of growth to merely a supporting player for the economy,"