Jill Andersen, who moved her upscale clothing boutique, Horseshoe, from Fremont to Ballard last month, can't escape the economic pall forming over this year's holiday-sales season. "Anywhere you go, people are talking about it," Andersen said shortly before interviewing a job candidate to help run her larger location.

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Jill Andersen admires the view outside her picture window in Ballard’s historic shopping district, where the tree-lined sidewalks regularly fill with visitors to the Sunday Farmers Market or nearby watering holes. “Retail heaven,” she calls the neighborhood.

But Andersen, who moved her upscale clothing boutique, Horseshoe, from Fremont to Ballard last month, can’t escape the economic pall forming over this year’s holiday-sales season.

“Anywhere you go, people are talking about it,” Andersen said shortly before interviewing a job candidate to help run her larger, more visible location on Ballard Avenue.

A year ago, the Puget Sound region was considered a bright spot in a national economy struggling with a housing-market downturn.

Now, homes locally are taking longer to sell and fetching lower prices when they do. The global credit crisis has made mortgages harder to get, and lenders are pulling back on home-equity loans, which might have gone toward lavish holiday presents. What’s more, stock prices have plunged, leaving many consumers feeling less well-off.

Like other retailers, Andersen hopes to do at least a third of her annual business in the final three months of the year. For her, though, the holidays are especially important this year: She ordered twice as much inventory as last year to justify the bigger space — and used credit cards to pay for more than $20,000 of it.

“I love my business, but debt is a scary thing,” she said. “Worst case, I think you just cut back on your expenses and ride it out.”

The data are not encouraging: Taxable sales by retail businesses in King, Kitsap, Pierce and Snohomish counties declined to $7.6 billion in the second quarter, down 4.5 percent from the same three months in 2007, according to the Washington state Department of Revenue. A first-quarter decline of 3 percent ended five straight years of sales growth for area retailers.

“The region had been growing much faster than the U.S. economy in recent years but has slowed considerably this year,” said Seattle economist Doug Pedersen, who publishes The Puget Sound Economic Forecaster with another Seattle economist, Dick Conway.

Some reliable sources of spending power can no longer be taken for granted this holiday season. About 25,000 Boeing Machinists in Washington state are in the second month of a strike. Microsoft earlier this month said it is reviewing its hiring plans, raising the possibility of slower payroll growth. And JPMorgan Chase, which bought most of Washington Mutual last month after the Seattle thrift failed, will soon decide how many employees get to keep their jobs. They’ll find out by Dec. 1.

“In some ways, we’re still doing better than the nation. We’re not losing jobs yet,” Conway said. “But when the nation is in big trouble, that’s not saying much.”

Last month, the Washington Economic and Revenue Forecast Council predicted that the state’s fourth-quarter taxable sales will rise slightly from a year go, but that was before the Lehman Brothers collapse and subsequent sell-off on Wall Street.

Nationally, the 2008 holiday season is expected to produce the smallest sales gain since 2002. The National Retail Federation’s estimate of a 2.2 percent increase would be down from last year’s disappointing gain of 2.4 percent and half the average of the past decade, 4.4 percent.

Camille Carette, a recent Gonzaga University graduate who lives with her parents in North Seattle and works for a downtown public-relations firm, said she and her 20-something friends worry about an uncertain job market. So they’re cutting back on their spending, including at the gas pump.

“Instead of going out to dinner, we all will go to a grocery store. Everyone will buy a little something, and we’ll make it together,” Carette, 22, said. “One of my friends has a hybrid car, so we all make her drive.”

Borrowing money to pay for large purchases, such as a new car or dining-room furniture, might no longer be possible — let alone affordable — for consumers with so-so credit scores and meager down payments. Greg McBride, senior analyst at Bankrate.com, describes lenders as “looking for reasons to say ‘no,’ not ‘yes.’ ” Although reducing consumers’ dependence on borrowed money ultimately puts them and the economy on firmer financial footing, he said, “it’s going to be painful in the short term.”

Jan Teague, president and CEO of the Washington Retail Association, predicts retailers that sell less-expensive items, including clothes and small electronics, will fare better than their big-ticket counterparts this holiday season. “Yes, people will buy, but how they buy will change,” she said.

Of course, the economic downturn might not be all bad for consumers. National Retail Federation spokesman Scott Krugman said retailers are likely to step up promotional activity, such as discounts, to appeal to price-conscious consumers. “It’s going to be very aggressive, so that probably is going to mean early and deeper discounts,” Krugman said.

At Fireworks’ five Seattle-area stores, suggested gifts costing $25 or less will be displayed together on tables. “We’re looking at merchandising stores in a way that makes it easier for customers to see things at different price points,” said operations manager Pauline Cooper.

Some retailers claim that although the economic turmoil hurts them overall, parts of their business are thriving. Jack Schwefel, chief executive of kitchen-products retailer Sur La Table, said more people are buying automated coffee machines for between $1,200 and $4,000. He suspects they’re scrutinizing their twice-a-day latte runs to coffee shops and figuring the machines will pay for themselves in a year or two.

Schwefel noted that Sur La Table does more than a third of its annual business in the final three months of the year. He said it will emphasize “value” to boost sales this holiday season, so that a new ceramic platter or stainless-steel saucepan is seen as a smart investment.

“It’s not going to be in a landfill next spring,” he said.

Likewise, Andersen praised one of Horseshoe’s top sellers, a blue hooded jacket for $238, as versatile enough to wear to work or at home on weekends. “If you’re going to spend money, especially when times are hard, you’re going to buy something you need,” she said.

As she spoke, Andersen was preparing for a trip to Los Angeles to look at new spring merchandise, a task she found daunting partly because of the widespread uncertainty.

“The new location is a lot busier than where we were, and I have to factor that in. But then, we have this doomsday economy, and you don’t know how that will affect you,” Andersen said.

“Also, we’re going to be electing a new president. Everybody I see has an Obama button on,” she said. “I think, ‘Oh, boy, if he doesn’t win, it’s going to be ugly.’ “

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com