US retail sales are expected to slow down this year as fuel prices rise and the housing market wavers.

The normally optimistic National Retail Federation is tempering its forecast for 2006 and predicts a 4.7% increase in sales from last year, compared with 6.1% during 2005.

Comments NRF chief economist Rosalind Wells: "With the housing market beginning to slow, consumers will be challenged to find new sources of spending power. The strong retail sales we saw in the second half of 2005 will be replaced by more conservative spending in the New Year."

The NRF says some of the strongest growth in 2005 was in building-related outlets and furniture stores. This is expected to lose momentum in tandem with the housing market.

However, the group is hoping the US Federal Reserve will keep its nerve on interest rates in a bid to boost consumer confidence and spending.

The NRF adds: "In the near-term, underlying inflationary pressures appear to be under control. Productivity is still quite high and, as a result, unit labour costs are low. These trends should give the Fed some peace of mind."

Data sourced from Financial Times online; additional content by WARC staff