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NEW YORK CITY-Retailers shouldn’t expect a merry Christmas, and 2009 won’t be so great either, said analysts at Standard & Poor’s second annual Retail and Consumer Products Conference, held here yesterday.

The upcoming holiday season will be the worst in recent memory, predicts Gerald A. Hirschberg, an S&P director, predicting sales of about $250 billion, on par with 2006. At best, he said, sales will be flat. More likely is a 2% decline – or more.

“Last year, I remember saying 2008 would be tough for retail,” Hirschberg said. “I was wrong. It was torturous. Even the best companies are struggling, and it’s just beginning.”

Overall, the US has seen 60 corporate defaults this year, and is well on its way to 80. Next year will see as many as 150 defaults, and “retail and consumer products, history tells us, will have their fair share,” said John Bilardello, an S&P managing director. Also expect to see strong companies that have been stockpiling cash to acquire the poorly financed.

The US is about 10 months into a recession that will probably bottom out in the second quarter of 2009, said Chief Economist David Wyss. But the next couple of quarters will be tough.

“We’re just about to hit the cliff,” he said. “It will be a moderate depth recession, similar to 1991-92. But it will be one of the longest in history, and could get deeper,” if the price of oil spikes again.

The current situation is the culmination of a number of factors, some of which had been disguised. The housing market had been declining for a couple of years, but until this year the rough spots had been offset by foreign investment due to a weak dollar and commercial development. The housing market is essentially a regional problem, Wyss said, focused on the Rust Belt and Sun Belt.

“The problems in Detroit have nothing to do with subprime mortgages,” Wyss said. “Detroit has no jobs right now.”

In the Sunbelt, prices rose 20% annually, to the point where the average price of a home in San Diego was 14 times the median income, an unsustainable level, given that the current average is about 2.7 times income.

“Those prices have to come down to realistic levels,” Wyss noted. Prices already have declined 50% from their peak in those areas.

But the minor slowdown at the end of 2007 became a full-fledged recession when oil prices skyrocketed and the credit market shut down.

“There’s a lot of liquidity out there, but it’s scared stiff and hiding in the deepest of holes, Treasuries and cash,” Wyss said. Interest rates are likely to be cut again, either in December or January, to 50 basis points.

“The Fed is pulling out all the stops to get things going again,” Hirschberg said.

Consumers, too have pulled back, saving rather than spending. But increasing the savings rate could be a double-edged sword.

“The American consumer has been supporting the economy in the good old way: living beyond their means,” at least until gas prices hit a high this summer, Wyss said. “We’re going to have to learn to live within our means. Expect the savings rate to get to a whopping 2%. [But if] the consumer saves more, we could be in serious trouble.”

And more turmoil awaits. The aging baby boomers could break an already damaged system, Wyss said, as Medicare will run out of funds in four years. Major entitlement reform is necessary, and right away, he added.

But for holiday shoppers with money, this season could be a boon. Stores will be heavily promotional, Hirschberg said, though with perhaps less selection than in the past.

“It will be a bonanza if you can afford it,” he said.

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