NEW YORK (Dow Jones) -- Amid housing concerns and credit worries, U.S. retailers could be headed for their worst holiday season in five years, according to the National Retail Federation. Holiday sales are projected to rise 4% to $474.5 billion, which would be the slowest gain since 2002 and would fall below a 10-year average rate of 4.8%, said NRF, the world's largest retail trade association.

"Retailers are going to take a very cautious approach to the holiday season," NRF spokesman Scott Krugman told MarketWatch. "Consumers can expect retailers to be very aggressive with their pricing strategy. Retailers are going to pull out all stops to get consumers in early."

Luxury retailers will likely be the winner this holiday, NRF said. Budget concerns among lower- to middle-income shoppers may signal trouble for discounters and some department stores, as consumers opt to shop at less expensive locations, according to the NRF.

Rising oil prices, declining home prices and subprime worries that have resulted in tighter bank lending have combined to affect consumer sentiment and spending, especially on housing-related goods, analysts said.

Sears Holdings Corp. (SHLD) , the largest U.S. appliance retailer, was among the retailers that have cited slow appliance or other home-goods sales. Home Depot Inc. (HD) Chief Executive Frank Blake said this month that he expects weakness in the macro environment through the end of the year and into 2008.

The Federal Reserve cut its overnight interest rate target on Tuesday, its first such move in more than four years, by a more-than-expected half percentage point, citing financial market turmoil as a threat to economic growth. U.S. stocks rallied on the news through Wednesday.

Results from some retailers also gave some investors hope that the holiday season may not turn out as badly as expected. Consumer-electronics retailer Best Buy Co. (BBY) and supermarket chain Kroger Co. (KR) both reported better-than- expected quarterly profits this week and raised their outlooks for the year.