LOS ANGELES (Reuters) - A leading consumer research firm slashed its 2008 holiday retail sales forecast to a 3.5 percent drop from last year on Wednesday, far worse than its previous call for a 1 percent decline.

America's Research Group said the move follows "disappointing" Black Friday survey data showing that shoppers were sticking to budgets and checking gifts off their lists by snapping up deeply discounted doorbuster specials.

On November 12, company founder and Chief Executive Britt Beemer forecast that the shrinking U.S. economy would usher in the first decline in holiday sales in almost a quarter century of holiday spending surveys. On November 30, he said he expected to lower his estimate.

"I thought I was going to reduce my forecast but I thought I was going to go to minus 2 versus minus 3.5," he told Reuters in an interview.

"When you look at the numbers, you see that over the weekend consumers were frugal and focused, staying within their budgets and concentrating on the deals and advertised specials," said Beemer. He cited data from the third installment of the America's Research Group/UBS Christmas Survey conducted during the Black Friday weekend that marks the start of the holiday shopping season.

More consumers are mostly finished with their holiday shopping this year than a year ago, leaving retailers less room to squeeze out more sales.

Just over 19 percent of the 809 shoppers surveyed said they had finished 90 percent or more of their holiday shopping, compared with 13.6 percent last year. Nearly two-thirds of the respondents, or 63.1 percent, said they would finish their shopping in three days or less.

Disciplined shoppers were making lists and sticking to them, Beemer said. For example, 70.2 percent of consumers polled said they stayed within their budgets.

The survey showed that 88.1 percent of shoppers turned out for "early bird" specials on Black Friday and the same number said they bought items they saw advertised.

Of the consumers who said they planned to shop over the weekend, 37.0 percent shopped on Friday and another 37.0 percent did not shop at all, the highest numbers in over a decade, according to the ARG/UBS, which has an error factor of plus or minus 4.5 percent.

BLUE CHRISTMAS?

The U.S. economy has been in a recession since December last year. Job losses are mounting amid a global credit crunch that has made it more difficult for consumers to buy now and pay later.

As a result, demand for everything from cars to restaurant meals has fallen as worried consumers pay down debt and squirrel away cash.

None of that bodes well for retailers, who traditionally move from losses to profits during the holiday shopping frenzy, and some analysts are calling this the worst sales environment in almost two decades.

Retailers started slashing prices long before the holidays -- a strategy that boosts revenue and clears inventories but sacrifices profits.  Continued...