TNS Retail Forward yesterday predicted the gloomiest Holiday-season sales forecast of the past 17 years.

The Ohio-based researcher forecasted Q4 sales up 1.5% over the prior year, making it the smallest year-over-year bump since 1991.

"There's a financial retrenchment going on in households that hasn't been felt since the early 1990s," says Frank Badillo, senior economist for TNS.

Amid all the pessimism about total retail sales, are some bright spots for online retailers. Online sales are projected to grow 9%. That pace of growth is down from last year’s 19% gains, and if the forecast proves true, 2008 would represent the first single-digit growth Holiday season for online retailing since 1999. But it's still growth, and savvier online merchants and pure plays will outperform that average.

Of course, the slowing percentage rate of growth also reflects the mathematical reality of the now colossal size of the online retailing channel. TNS forecasted online sales to reach $42.5 billion in the fourth quarter, up $3.5 billion year over year.

Timberline Interactive's perspective is this:

1) Anyone who reads the news -- with its daily dose of high oil prices, layoffs, stock market routs, and crises in the housing and financial markets -- knew this was coming.

2) Merchants with strong brands, unique selling propositions, and compelling websites are in a position to grab more market share, whether the economy is down or up.

3) The advantages of online shopping over bricks and mortar stand out as starkly as ever: Online shoppers save gas and save time; they can browse a limitless selection and troll for the best prices.

4) The situation raises the bar for all of us in ecommerce to review our sites' graphic design, functionality, products, merchandising and promotions to squeeze every drop of improved performance out of our online traffic -- this Holiday season and all year round.

Sarah Mahoney covers the TNS report, as well as other forecasts and experts chiming into the general chorus of dread, in MediaPost's "Marketing Daily" today.