By  on September 19, 2005

NEW YORK — Consumer spending during the holidays stands to be adversely affected by high energy prices and, to a certain degree, by Hurricane Katrina, analysts said. And while consumption during November and December will remain moderately steady, it may not live up to last year's sales levels.

If they keep climbing, energy prices could be the most serious concern surrounding the strength of holiday, a recent report from retail consultancy Customer Growth Partners LLC found. The effects will be seen more for lower-income consumers than for those in higher-income brackets because, percentage wise, money spent on gas eats more into total income levels for lower-income shoppers, Craig Johnson, president of CGP, said in the report.

"So we [will be] seeing a modest impact on Wal-Mart and dollar store sales, but not a showstopper, especially since we're concurrently seeing a retail 'cascade' effect, where some middle- and upper-income households are shopping more frequently at the Wal-Marts, Dollar Generals and Costcos of the world," Johnson said.

Michael Niemira, director of research at the International Council of Shopping Centers, also expressed concern over how much gas prices will hurt the consumer's ability to spend during the holidays. Gas prices, he said, are a far more pressing concern than the effects of Katrina because home heating oil bills could be as much as 50 percent higher than last year due to a projected colder-than-normal winter this year.

"In the last survey we did a week-and-a-half ago, it has increased to 59 percent of consumers who said that they had scaled back spending [due to gas prices] a little or a lot. So it's a bad situation, and we've only seen the first wave of the energy impact," Niemira said.

In addition, a preliminary holiday sales forecast from Ernst & Young LLP found that holiday sales will be affected by Hurricane Katrina because the storm has helped push gasoline prices over $3 a gallon in most regions of the U.S.

Jay McIntosh, Ernst & Young's director of retail and consumer products research for the Americas, predicted that, if discounters become concerned that consumers are spending less due to high energy costs, they could be promotional early in the holiday season, or even start promoting holiday in October. That would negatively affect top-line growth for the November-December sales period.

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