Nov. 19 (Bloomberg) -- The holiday sales season may be the grimmest for U.S. retailers in at least five years as reduced profit forecasts by J.C. Penney Co., Starbucks Inc. and FedEx Corp. show the effects of a slowing economy.

``The reports this past week indicate that things are really bad,'' Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich, said Nov. 16. Her firm manages $11.9 billion in assets, including shares of several store- chains. ``Early indications are this is going to be a much slower time going forward than previously expected,'' she said.

High gasoline and home heating prices, as well as levels of consumer debt, are discouraging Americans from spending, according to a survey released today. Retailers reported slowing sales in September and October, and analysts said chains catering to middle-income customers may be hurt the most in the next six weeks.

FedEx Corp., the second-largest U.S. package-shipping company, cut its profit forecast on Nov. 16 for a second time because of rising fuel costs and weak freight demand.

Shares of retailers have been plunging since the holiday sales season started Nov. 1. The Standard & Poor's 500 Retailing Index fell 3 percent to 407.06 at 4:14 p.m. The index is down 12 percent this month, including a 27 percent drop by J.C. Penney, the third-largest U.S. department-store chain.

Two Affirmed Forecasts

The holiday selling season's losers may be the companies that don't manage to adjust their variable costs like store hours and advertising to compensate for decelerating sales. Such discipline helped Macy's Inc. and Williams-Sonoma Inc. affirm their profit forecasts this past week.

Thirty-five percent of Americans surveyed said they intend to lower their holiday spending this year, the most in eight years and up from 32 percent last year, the Consumer Federation of America and the Credit Union National Association said today.

``By a wide margin, the strongest negative influence is the high cost of gasoline and home heating,'' the credit union group's chief economist, Bill Hampel, said at a news conference.

Sales in November and December represent 20 percent of retailers' annual revenue, according to the National Retail Federation, a Washington-based trade group. U.S. jewelers tally the highest percentage of their sales during the season, 31 percent, and department stores, 24 percent, the NRF said. The fourth quarter accounts for almost a third of retailers' annual profit, according to the International Council of Shopping Centers.

Impact on Economy

Spending by consumers also accounts for two-thirds of U.S. gross domestic product.

``They felt rich a year ago,'' said Kurt Barnard, president of Retail Forecasting LLC in Upper Montclair, New Jersey. ``Now they feel put upon. That robs them of a certain freedom to spend what they like.''

The ICSC, a New York-based trade group, projects November and December comparable sales at the approximately 70 chains it tracks to climb 2.5 percent, the slowest in three years. The NRF in September predicted a 4 percent gain in total retail sales to $475.5 billion for November and December, the smallest gain since a 1.3 percent rise in 2002.

``Unbeknownst to us, we saw economic headwinds that quite frankly came up probably stronger than I thought,'' Starbucks Chief Executive Officer Jim Donald said in an interview Nov. 15 after the world's largest chain of coffee shops lowered its profit and sales outlooks. The company also reported its first- ever decline in U.S. customer visits.

Lowered Forecasts

J.C. Penney on Nov. 15 reduced its fourth-quarter profit forecast by as much as a third. A day earlier, Macy's, the second-largest after Sears Holdings Corp., trimmed its sales estimate for the year-end period.

Williams-Sonoma, the biggest U.S. gourmet-cookware chain, said fourth-quarter profit will be at the low end of its prediction.

``The macro environment is weakening,'' Williams-Sonoma Chief Executive Officer Howard Lester said in a Nov. 15 statement. ``Retail traffic is slower than we would have expected.'' Retailers are ``struggling,'' he said on a conference call.

Kohl's Corp., the fourth-largest department store company, and Home Depot Inc., the world's largest home-improvement retailer, also cut profit projections last week.

Wal-Mart's Outlook

Bucking the trend was Wal-Mart Stores Inc., the world's largest retailer. On Nov. 13, it boosted its full-year forecast after reporting higher third-quarter profit than analysts estimated. The discounter made more numerous price cuts on holiday items this year, starting with toys in October.

Some luxury retailers, which cater to wealthier consumers, have raised warning flags. Polo Ralph Lauren Corp. this month reported a slowdown in September sales and cut its annual profit forecast for a third time.

Nordstrom Inc. reduced expectations earlier, in October, cutting its third-quarter profit outlook because it has had to take markdowns to clear excess inventory. It reports earnings today. Other retailers releasing quarterly results this week are Target Corp., the second-largest discounter, and luxury retailer Saks Inc., which both report tomorrow, and Gap Inc., which does so on Wednesday.

The traditional kick-off to the holiday rush, known as Black Friday because the season may determine whether retailers are profitable, is in four days.

To contact the reporter on this story: Cotten Timberlake in Washington at ctimberlake@bloomberg.net

Last Updated: November 19, 2007 16:40 EST