Holiday sales growth will likely trail last year's big gains as Hurricane Katrina (search) drives up already steep oil prices, curbing consumer spending and raising shipping costs, two reports show.

Retailers are expected to mark down prices early and often to lure cost-conscious customers, who are spending a bigger portion of their household budgets on gasoline and heating oil, according to separate reports from the National Retail Federation (search) and consulting firm Ernst & Young.

But luxury chains will likely continue their strong run because their customers are less sensitive to rising fuel costs. Internet sales may also benefit as shoppers cut down on long car trips to save on fuel costs.

The NRF trade group Wednesday estimated that holiday sales will increase 5 percent to $435.3 billion, a slowdown from last year's 6.7 percent growth. The NRF forecast includes sales at chains including discounters, department stores, grocery stores and specialty retailers.

Ernst & Young Tuesday forecast a sales increase in the range of 6 percent to 7 percent for the November-December holiday sales period, down from last year's 8.3 percent jump. Ernst & Young's report tracks sales at traditional retailers as well as online stores and home improvement chains.

Hurricane Rita, which strengthened to a powerful Category 4 storm Wednesday, is likely to heap more pressure on retailers as it threatens oil production in the Gulf of Mexico, driving prices above $68 per barrel.

Consumer sentiment is at a 13-year low, making it even tougher for retailers to coax shoppers into stores and hitting stocks across the sector. The Standard & Poor's retailing index (search) was down 1.1 percent early Wednesday and has fallen more than 13 percent from a July 29 all-time high, underperforming the broader S&P 500.

Retailing heavyweight Wal-Mart Stores Inc.'s (WMT) shares fell 0.6 percent, pushing them near a five-year low.

Wal-Mart set the stage for a fiercely competitive holiday season earlier this month, saying that it would aggressively mark down prices to draw shoppers. Wal-Mart drew criticism from Wall Street last year for keeping prices too high and driving some customers away.

Rosalind Wells, chief economist for the NRF, said fuel prices, employment rates, disposable income and consumer confidence will all factor into the sales performance.

"Though it might be easy to label gas prices as the make-or-break factor for the holidays, it is crucial for analysts to look at the big picture instead of isolating one economic indicator to project sales," she said.

Transportation costs are likely to increase, cutting into retailers' profitability, said Jay McIntosh, director of Ernst & Young's retail and consumer products practice. Hurricane Katrina has increased already steep fuel prices, so retailers may have to contend with fuel surcharges on imported goods as well as higher costs for domestic freight and rail transport.

"It's going to have a significant impact on their costs," McIntosh said, noting that retailers will be reluctant to pass those higher costs through to consumers in what is shaping up to be a highly competitive holiday season.

Ernst & Young said retailers may even start promoting holiday sales in October instead of waiting until early November. Stores used to kick off the holiday season after Thanksgiving, but sales have started earlier and earlier in recent years as retailers try to catch early-bird shoppers.