These are the results of the most recent "Lending Climate In America" survey. Phoenix, a locally based advisory, conducts the survey quarterly among lenders from commercial banks, finance companies and factoring firms nationwide.

"Lenders across the nation expect the shopping season to be a `ho hum' one for retailers," concludes Michael Jacoby, a Phoenix managing director and shareholder. Although "lenders aren't overly hopeful about consumer spending this year," he says, "they're not predicting a Grinch-like mentality among shoppers either. If lenders' predictions hold true, retailers will have something to smile about this holiday season, but they probably won't get everything on their wish list."

After two quarters of relative optimism, lenders indicated increasing wariness of a possible economic downturn in the survey concluded three months ago. Their outlook for the country's economic performance slipped even further this quarter.

They now predict the economy will perform at a high "C" level during the first six months of 2007. That will be followed by a "mid-C" performance during the second half of the year, they believe.

The slowing housing market has the greatest potential to undermine the economy, according to 33% of the lenders polled who cited that as the factor that could cause the most damage. Close behind that are concern over unstable energy prices, indicated by 26% of the lenders, and a slowdown in consumer spending, cited by 24% of the survey respondents.

Loan losses and bankruptcies are both expected to rise. The highest percentage of lenders in five consecutive quarterly surveys, 21%, said they planned to increase their current interest rate spread and fee structures on similar credit quality loans in all loan-size categories. This is up from 14% who said they planned to do so in the previous quarterly report.

Nearly half, 46% of the survey participants, predict the Fed will not change interest rates in the coming six months. Yet, 18% predict the Fed would decrease interest rates, versus just 2% who said so in the previous quarterly survey.