In A Moment Of Optimism Retailers Say Holiday Sales Will Be Bad (WMT)(SHLD)(CC)

Hope is a fine human emotion until it moves to lunacy. A psychosis of optimism has seized the retail industry. The National Retail Federation says that sales will rise only 2.2% this holiday season. That would make it the worst year in the last six.

According to Reuters, research firm TNS Retail Forward sees holiday sales falling to a 17-year low. Neither forecast bothers to look back to the early 1980s recession or the deep economic malaise of 1973 and 1974.

The retail industry faces two challenges this winter and neither of them will be overcome by slick merchandising or low-price discounts.

The average consumer is devoting an unprecedented amount of their income to fuel and food costs at the same time that they cannot lay their hands on credit to cover expenses. Commodities prices may be down a bit from earlier this year, but they are still near historic highs. The home heating oil season is about to begin and the effects of that could drive many homeowners to despair.

To compound the trouble, many people believe they will lose their jobs over the next few months, and, unfortunately, they are right.

The consumer does not have a dime, no matter how much he wants to buy his kids an iPod or his wife a new washer-dryer set. In some cases, he cannot even afford to drive to the store. Wal-Mart (WMT) may get a few shoppers, but the balance of retail outlets will not.

Another challenge comes from the significant number of rich people who are out of work. By the end of the year, tens of thousands of the nearly wealthy from the financial industry will be in bread lines. That rules out an improvement in sales of Mercedes, expensive handbags, flat-screen TVs, and high-end jewelry and clothing.

The negative cycle is about to turn back on itself. A tough retail season means the weakest outlets like Sears (SHLD) and Circuit City (CC) will begin to cut staff. None of those people will be shopping either.

Douglas A. McIntyre