• by Sarah Mahoney  @mahoney_sarah, September 23, 2009

Consumer spending in the coming holiday season is likely to be flat compared to last year, predicts Retail Forward. But there's evidence that people -- mighty tired of reining in purchases -- will spend on the categories that mean the most to them. 

"When it comes to toys and gifts for children, as well as gifts for immediate family members, those categories are still somewhat sacrosanct," says Frank Badillo, senior economist for the Columbus, Ohio-based consulting company. "Consumers continue to be very focused on deals, so they'll likely buy that great toy from a discounter, not Toys R Us," he says. "They're still looking for the best value, and trading down in many channels."

But as the months of recession have worn on, he says, there is also an eagerness to start spending again, with many saying that when the economy does improve, they will finally take the vacations they have been delaying, for example. "And the fact that August's declines were softer than those in recent months signals a growing confidence among households," he says. "Shoppers are getting tired of the recession, and looking to add back in some small luxuries."

Badillo doesn't think these purchases will creep back into household spending impulsively, however: "Consumers will be looking to add these back in a very thoughtful way."

Still, the prediction of a flat year is hardly good news, especially after the decline of 4.2% in last year's holiday spend. "It will rank as the second-worst holiday in 42 years," he says.

In some categories, Retail Forward is predicting further declines, including a 2% dip in apparel and accessories stores, compared with a drop of more than 9% last year, and a 2% decline in home goods, compared to a 7.4% decline last year. "Consumer electronics stores will experience the biggest decline in part due to Circuit City's exit," the forecast says.

And while home-improvement retailers are also likely to see a 2% decline, they are most likely to see improvement if real estate continues to show signs of new life.