Two Iowa State University economists are predicting a difficult holiday season for retailers.

While the National Retail Federation's recent survey of 8,100 of its members found that the group expects a 2.2 percent increase in holiday shopping from 2007, two ISU economic experts disagree.

They project a decline in retail sales this holiday season with smaller businesses feeling more of the economic pain.

"This holiday season is the 'perfect storm' for retailers," said Meghan O'Brien, an economist with Iowa State's Regional Capacity Analysis Program. "Trade groups have predicted a sales increase of about two percent from last year, which is about half of the 10-year average. I think this is ambitious and overly optimistic."

O'Brien says consumer spending has been declining for more than a year. She sees the country's financial crisis, increasing inflation and a recessionary economy as reasons for lowered expectations.

ISU Associate Professor of Economics Joydeep Bhattacharya shares O'Brien's holiday retail concern, saying consumers typically save more and spend less during times of economic strife.

"In times of uncertainty, people increase their 'precautionary saving,' the saving for the rainy day," said Bhattacharya, who has research expertise in monetary theory, credit market imperfections and bank panics.

"Businesses will try to cut profit margins and offer deals to shoppers, but they are so constrained. Their pockets aren't as deep as they used to be and the deals will not be as good as they have been in the past."

O'Brien said specialty and high-end retailers will really struggle, likely producing more store closings and bankruptcies in those areas next spring.

"Discount retailers will do well comparatively, however, with everyone having less disposable income, they won't make up for the losses in other areas of retail."