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Thursday September 13, 8:08 pm Eastern Time

By Monica Summers and Jean Scheidnes

NEW YORK, Sept 13 (Reuters) - Most U.S. retailers, already weakened by a sputtering U.S. economy, could be bracing for another fall-off in consumer spending in light of the recent attacks on two major U.S. cities.

Americans were watching 24-hour news coverage of the World Trade Center and Pentagon tragedies and wondering if or when the country would respond to these attacks.

``At a time like this, when uncertainty has swept the country, people would actually feel guilty if they treated themselves,'' said Kurt Barnard, president of Barnard's Retail Trend Report.

On Thursday, a lot store fronts in New York City remained shuttered and shopping malls across the United States -- including the behemoth Mall of America near Minneapolis, Minnesota -- saw declines in shopping traffic.

``Yesterday, traffic was down 70 percent,'' said Mark, a salesman for a Nine West shoe store in midtown Manhattan, who declined to give his full name. ``Credit cards aren't even going through, we have to phone in for approval. I've heard it's the same for all businesses on this part of the street.'' Indeed, New York City may be considered a macrocosm of the sentiment shared by retailers and consumers across the nation.

Kim Maiers, store director at a Sephora cosmetics store in Times Square, said store traffic is down at her store and other Sephora stores across the city on Thursday -- particularly since many businesses in the area were affected by a spate of false bomb threats.

She said several of the Sephora stores were shut down for two full days after of the attack on the World Trade Center complex on Tuesday.

But while most retailers argued that it was too early to quantify the impact to sales or earnings, analysts expect September and third-quarter results will take a heavy hit and many are holding out hope that consumer sentiment will bounce back as the holiday shopping season draws nearer. ``Obviously we're monitoring the situation closely -- at this point we have not made any material changes in our outlook,'' said Susan Kahn, a spokeswoman for Target Corp. , the second largest U.S. retailer.

A handful of U.S. retailers responded to inquiries about their outlook saying they were focusing more on how they might respond to humanitarian needs in the aftermath of the attack, rather than on the near or long-term impact of the continued decline in spending.

CONSUMERS BUYING FROM NEED, NOT WANT

Analysts and economists say they expect consumers to limit their spending to essential items -- such as food, personal care products and other consumables -- turning their backs on discretionary items like apparel and entertainment products. ``The American consumer will go out and buy things they need, but they won't spend frivolously,'' Barnard said.

To be sure, sales and earnings results from U.S. retailers for the second fiscal quarter have shown that discount retailers like Wal-Mart Stores Inc. and Target have fared well, while department stores and specialty apparel retailers like Gap Inc. (NYSE:GPS - news) and J.C. Penney Co. Inc. continue to struggle against waning demand.

And while the back half of the year lacked any major change in that trend, industry analysts admit the likelihood of things changing for the better now remains even more unclear. ``There is no doubt that this horrendous event has had an immediate impact around the world,'' said Tracy Mullin, president and chief executive of the National Retail Federation, a Washington-based trade group for retailers.

``At this time, the long-term impact on consumer spending remains uncertain,'' Mullin said. ``However, we have no doubt that the U.S. economy and the American people will persevere in the face this tragedy.'' Further exacerbating the current environment, rising jobless rates threaten consumers' ability and willingness to spend money, which is a key concern for economic and monetary policy-makers since consumer spending accounts for two-thirds of the U.S. gross domestic product.

The U.S. Labor Department on Thursday reported first-time claims for jobless benefits for the week ended September 8 rose by 21,000 to 431,000. The University of Michigan's preliminary consumer sentiment index fell to 83.6 percent -- the lowest level this year -- from 91.5 in August. Economists had expected the index to read 90.8.

The survey was conducted through Sept. 10 -- the day before three hijacked planes toppled the twin towers of the World Trade Center and leveled part of the Pentagon -- an indication that consumer sentiment was already waning before the tragedy. Even the luxury goods sector, which many analysts had considered insensitive to economic cycles, now appears vulnerable to a sudden decrease in consumption.

``We have switched from financial problems to geopolitical, economic problems. When that happens, wealthy people start really pulling back,'' said economist Richard Hastings of the Vendor Compliance Federation, a supply-chain research firm.

RETAIL STOCKS TO REMAIN WEAK

Analysts also said they expect retail stocks to remain weak over for the remainder of 2001, partially because of the upcoming holiday shopping season, which historically pushes value down, and partially because of the attacks on the U.S.

Since June, many retailers have seen their shares lose value, while the Standard & Poor's retail index, comprised of 35 major U.S. retailers, has had about 17 percent of its value shaved off. ``While we have been of the opinion that the second half of 2001 was going to be challenging before these events, this tragedy only adds to our pessimism and may push out any anticipated recovery in retail sales and earnings until the second half of 2002,'' Dana Telsey, retail analyst with Bear Stearns, said in a recent note on the industry.

``Looking at the balance of 2001, we expect retail stocks to weaken, as they typically do in anticipation of holiday results,'' Telsey said. ``However, we believe that the recent events may only further exacerbate the expected decline.''