How's this for a merry little Christmas?

Before the U.S. holiday shopping season even begins, Morgan Stanley's chief U.S. economist has given up on consumer spending -- not only through Christmas '08 but all the way until next summer at the earliest.

"As we see it, the current collapse in consumer spending likely will be the most severe and longest in the postwar (World War Two) period," economist Richard Berner wrote in a note to clients. "The recovery in consumer spending likely will be moderate as consumers embark on a long period of rebuilding thrift.

Why so grim? Well, between the 1.2 million jobs lost since the beginning of the year and the downdraft in the housing and stock markets, income is taking a hit and household wealth is down about $7 trillion. Yes, trillion with a 'T.' Oh yeah, and there's that credit crunch.

Berner calls this the "perfect consumer storm" and says it will rage until mid-2009.

Now that you're thoroughly depressed, we should mention the silver lining. The drop in gasoline prices to $2.45 per gallon from $4 represents $225 billion in consumers' pockets. Add in another round of fiscal stimulus and it should limit -- though not offset -- the other strains on the system.

"Done right, and coupled with other policies to mitigate the credit crunch and foreclosures, these steps should promote a modest recovery beginning in 2010," Berner said.

Holiday gift cards are feeling a lot less like the gift that keeps on giving.

Over the past few years, gift card popularity exploded and retailers rushed to display new merchandise the day after Christmas, hoping to attract shoppers flush with new cards.

Retailers could count on consumers to splurge on full-priced merchandise or spend all the money on the card, plus a few dollars more.

But as shoppers have witness a slew of retail bankruptcies this year (Sharper Image, Linens N Things, Mervyn’s, Circuit City), they are showing some reluctance toward buying the cards as gifts for friends and relatives.

A survey by America’s Research Group conducted for Reuters found that 43.2 percent of respondents said they will give gift cards less often this year because they worry that those cards would be worthless if a retailer files for bankruptcy.

Additionally, with retailers already rolling out tremendous discounts to entice consumers to spend their limited dollars, shoppers may find they can buy presents this year for less than the amount they were planning to spend on a gift card.

“You’d rather buy a $75 sweater for $30, than a $50 gift card,” said NRF spokeswoman Ellen Davis.

Roughly 10 percent of sales during the November-December holiday season happen the week after Christmas, according to the National Retail Federation. But weaker gift card demand could make ringing up those sales, in an environment where shoppers are already loathe to spend, an even bigger challenge.

(Photo: Reuters)

Check out the holiday cheer coming from Hasbro’s CEO.
 
Remember when everyone said luxury stocks were more immune to a recession? That was before the housing slump, the credit crisis and the meltdown on Wall Street. Now the Dow Jones Luxury Index is down 52 percent from a year ago.
 
Remember when food companies said they were a little less vulnerable to an economic downturn because people still have to eat? Well, people still need to eat, but lower-priced store brands have been taking market share and food shares, as demonstrated by the Standard & Poor’s Packaged Foods index falling 11 percent in the past three weeks.
 
Well, now the next test case might be the idea that people will still keep spending on toys for their children during Christmas.

“We still believe that Christmas will come for consumers and retailers this year and our retailers have agreed that toys and games are more recession resistant than other discretionary spending categories,” Hasbro CEO Brian Goldner said during a conference call with analysts.
 
Hasbro beat analysts quarterly profit estimates, while higher costs caused Mattel to miss.
 
But what kind of Christmas will it be? Christmas came for the Cratchits in “A Christmas Carol,” but while it was full of good feeling and cheer, it was a tad light on presents, at least before Scrooge had his epiphany.
 
Will Christmas for toymakers be commercial, or Dickensian?
 
Also in the basket:
 
U.N. agency says crisis to cost 20 million jobs
 
Circuit City weighs broad cuts (WSJ, subscription required)
 
Adrenalina bids for PacSun (WWD, subscription required)

 (Reuters photo)

Check out forecasts for small gains in holiday sales.

The National Retail Federation forecasts that U.S. holiday sales this year will rise 2.2 percent to $470.4 billion as consumers grapple with rising unemployment, and higher food and grocery costs.

That would mark the smallest gain since 2002, when retail sales rose 1.3 percent as a slumping economy and job woes also weighed on sentiment.

The retail group’s chief economist expects discounters to fare better this holiday season as shoppers hunt for bargains, and she does not expect an economic turnaround until the second half of next year.

Another group expects 2008 holiday sales to be even more dour.

TNS Retail Forward predicts 1.5 percent growth, which would represent the worst holiday showing in 17 years. A forecast from Deloitte calls for a sales rise of 2.5 percent to 3 percent.

These forecasts can be hard to compare, because many use different timeframes to measure holiday sales. But in the bleakest forecast yet, Britt Beemer of America’s Research Group is already predicting a decline in holiday sales.

Also in the basket:

Banking bailout not seen aiding credit crisis

Longs Drugs says no to merger talks with Walgreen

China vows to crack down on exports amid milk crisis

(Photo/Reuters)

It’s Christmas already at Macy’s and yes, indeed, the holiday is on sale.

More than a month ahead of Halloween, the U.S. department store chain has dragged out its colorful collection of ornaments, baubles and beads and discounted the price by 25 percent.

Trees at Macy’s Holiday Lane Christmas shop in downtown San Francisco are festooned with themed ornaments. Besides the requisite trees covered in gingerbread, Santas, and holly, Macy’s offered up a lavender tree, a pink tree, a Hawaii tree, a tree with pink flamingos, a San Francisco-themed tree, a Martha Stewart tree and, yes, a Sex in the City tree (complete with ornaments resembling pink martini glasses and pink Eiffel Towers — a nod to Carrie’s last-season stay in Paris.)

Retail watchers expect this holiday season to be downright dismal in the United States, and some have predicted that it may be one of the worst on record, given the housing downturn, rising food and fuel costs, a weakening job market, and the credit crunch — not to mention headlines from Wall Street this week. 

Macy’s did not immediately return a phone call seeking comment on whether Christmas was coming just a bit early this year — maybe to reap a few early sales before the next shoe drops in the economy?

With the exception of a handful of Italian, German and British tourists looking for souvenirs, Holiday Lane shoppers were few and far between one Friday afternoon.

“We’ve got to have a Christmas ornament from Macy’s,” said British tourist Debbie Simmonds, browsing with her daughter, tour guide in hand.

Still, she balked at the $40 price tag on an elaborate Asian fish ornament and instead settled on a small gold crustacean for $22, passing on the pink poodle ornaments.

Noted Simmonds: “Why would you want a pink poodle on your Christmas tree?”     
 
(Photo: Alexandria Sage)