With stocks treading water, consumer spending slowing and the economy skidding into a possible recession, Americans are becoming less inclined to refinish that dining room,

Home Depot

(HD) - Get Home Depot, Inc. (HD) Report

is learning.

The slowdown and falling prices for lumber and building materials are taking a bite out of Home Depot's fourth-quarter earnings, the company said Friday. And things could get worse before they get better, analysts say.

Atlanta-based Home Depot expects to report fourth-quarter earnings of 20 cents a share, short of Wall Street expectations and below year-ago earnings. According to

First Call/Thomson Financial

, analysts expect the company to earn 24 cents a share for the fourth quarter, down from 25 cents a year ago.

Can't Go Home Again
Home Depot shares over a year

The company also said it expects sales at stores open at least a year to be flat for the quarter, compared with previous estimates of a 4% gain.

Shares took a spill Friday, sliding $2.06, or 4.7%, to $42.19.

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Downward Pressure

The company reeled off a long list of factors to account for the shortfall, most falling under the umbrella of a slowing economy: high energy costs, falling stock prices that make people feel less wealthy, slower consumer spending and increasing consumer debt levels. In addition, falling prices for lumber and building materials weighed on the company's earnings.

"The lowered earnings outlook is a direct result of these realities," Bob Nardelli, president and chief executive, told analysts and the media in a conference call Friday morning. "It is happening rapidly and resulting in tremendous downward pressure."

The same factors the company cited for its fourth-quarter shortfall aren't likely to disappear anytime soon, leading many analysts to believe that we haven't heard the last of the Home Depot earnings warnings. (The company also

warned in October, but at that time many in the investment community felt it was a one-time affair. Later, the company warned that the fourth quarter may be

"tough" but did not lower earnings forecasts.)

"We continue to suspect that business trends at Home Depot will be challenging through

the first half of the year, with stronger consumer trends beginning to flow through to consumer spending patterns on the home by late spring/early summer 2001," wrote Alexandra DalPan, an analyst at

Robertson Stephens

in a research note Friday. She maintained her buy rating, but slashed her 2001 earnings-per-share estimate from $1.37 to a range of $1.25 to $1.30. (Her firm doesn't have a banking relationship with Home Depot.)

And in a research note Tuesday,

Prudential Securities

analyst Wayne Hood downgraded Home Depot to a hold from a strong buy and predicted the company would lower its three-to-five-year earnings forecasts within 12 months, citing slowing growth in new store openings. (Hood's firm does not have an underwriting relationship with Home Depot.)