Deep discounting at U.S. retailers drew consumers to stores in November, two reports showed on Tuesday, but disappointing results for the last week of the month herald a grim holiday season.

Analysts are hoping that consumer spending — which accounts for two-thirds of U.S. economic activity — will soften the recession that began in March and help lead the economy back onto a growth path. 

But the Bank of Tokyo-Mitsubishi and UBS Warburg said on Tuesday their retail chain store sales index fell 1.7 percent during the week ended Dec. 1, following a 0.9 percent gain one week earlier. 

While Instinet's Redbook Retail Sales Average rose 2.4 percent in the four weeks ended Dec. 1 compared with the same period in October, matching a 2.4 percent gain in the previous weekly report, there were some worrisome signs in the report. 

Redbook said retailers were disappointed with the latest week's results, blaming unseasonably warm weather for a lag in sales of winter clothing. 

"The fundamentals just aren't there for a strong holiday season," said Steven Loeys, economist at Lehman Brothers. 

The holidays are crucial for retailers since November and December sales account for around one quarter of overall retail sales for the whole year. The significance of weak holiday sales extend well beyond the performance of the retail sector, said Mike Niemira, senior economist at BTM. 

"It's a very risky environment," he said. "Statistically, a strong Christmas bodes well for the subsequent year from an economy standpoint. So, if it's a soft Christmas season, then that's the kind of the year that you look ahead for." 

The Trouble With Discounts 

Part of the trouble is that value-conscious consumers' increasing appetite for bargains cuts into the overall dollar value of sales, hurting retailers. 

BTM's sales index, which measures overall sales volume in dollar amounts, fell to 386.4 last week — its lowest level in five weeks — compared with 393.1 in the prior week. 

The near two percent drop — for an index that hardly ever budges a full percentage point from week to week — indicates the trouble with revving up sales through deep discounting. 

Most U.S. retailers will announce monthly sales results for November this Thursday. 

Consumer spending set a record in October after rebounding from a sharp fall off after the Sept. 11 attacks. BTM expects a 3.0 percent rise over November sales last year. 

Compared with the same week last year, the BTM index rose 3.1 percent, stronger than the prior week's year-over-year gain of 2.2 percent, and approaching the 3.3 percent rate of growth seen the week before the devastating Sept. 11 air attacks in the United States. 

The Redbook Average grew 2.7 percent year-over-year, after a 4.8 percent gain in the previous period. 

But analysts cautioned against yearly comparisons because growth relative to an exceedingly poor holiday season last year was misleading, and did not yield an accurate picture of retailers' performance. 

Cross-year comparisons are also made difficult by the fact that the Thanksgiving weekend — a crucial period for holiday shopping — was earlier this year than last, Loeys said. 

The BTM/UBSW Weekly Chain Store Sales Snapshot is compiled from seven major discount, department and chain stores across the country. They include J.C. Penney Co. Inc.; Sears, Roebuck and Co.; Target Corp.; Kmart Corp., Wal-Mart Stores, Federated Department Stores Inc., and May Department Stores Co. 

The Redbook Retail Sales Average is a sales-weighted average of annual growth in same-store sales at discount, department and chain stores that report results on a weekly basis. The index is released weekly by Instinet Research, a division of Instinet, a Reuters-owned electronic brokerage.