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.

Check out what Morgan Stanley is saying about retailers and restaurant owners.
 
It isn’t good. Morgan Stanley is cutting its 2009 earnings estimates and price targets, saying its retail sales lead indicator dropped 1.1 percentage points in June, and the key reasons — home prices, unemployment and food and fuel inflation — are not likely to improve anytime soon.
 
The indicator, which uses a bunch of factors to predict future retail sales, is down 3.7 percentage points from a year ago and the outlook for the second half of 2008 looks grim, Morgan Stanley said in a research report.
 
“We see the likelihood of a decelerating 2008 carrying over into 2009 growing,” Morgan Stanley said, adding that the tax rebate checks making their way into the system will not be enough to offset macroeconomic headwinds in 2009.
 
Tax rebate checks “may actually have a pull forward effect that could make conditions worse for retailers into 2009,” Morgan Stanley said.
 
Also in the basket:
 
Chico’s June same-store sales fall 12.9 percent
 
M&S’s Rose faces stormy showdown with shareholders 
 
(Photo: Reuters)