U.S. home-improvement product sales are headed for their biggest decrease in 32 years and their third straight annual decline as housing markets continue to sink and the economy contracts sharply, according to a new forecast by an industry trade group.

The Home Improvement Research Institute/IHS Global Insight forecast predicts a 6.4% drop in home-improvement product sales to $272 billion in 2009, on top of a downwardly revised 2008 decline of 4.5%.

That would represent the biggest decrease since the Home Improvement Research Institute, or HIRI, began industry outlooks in 1977, said Executive Director Fred Miller. The largest previous decline was a 5.2% drop in 1991.

HIRI's members include Home Depot Inc. (HD), Lowe's Cos. (LOW), Black & Decker Corp. (BDK) and dozens of other retailers and manufacturers.

The federal stimulus package is "too small and too slow" to generate a robust recovery in industry sales quickly, the trade group said in a press release late Friday. Its forecast assumes that real GDP will decrease 6% in the first quarter and will remain lower in the second quarter, that housing starts will bottom in the second quarter and that the unemployment rate will top out at 9.4% in the first half of 2010.

Deflation is also expected to threaten industry sales this year.

Industry product sales this year are expected to decrease to $272 billion from $290.5 billion, with sales to the consumer market falling 5.5% and sales to professionals off 9%. Consumers buy about three-fourths of all U.S. home improvement products, and the group's figures do not include installation costs.

Sales to the consumer market fell 3.8% to $215.2 billion in 2008, dropping across nearly all channels of distribution. Sales to remodelers and other professionals fell 6.5% to $75.3 billion.

Home Depot last month said total 2008 sales of products and services fell 6.5% excluding the impact of an extra week in the 2007 reporting calendar. The retailer expects a 9% decline in total sales in 2009.

Lowe's posted a 0.1% decline in product and service sales for 2008 and said in February that 2009 sales should range from a decline of 2% to an increase of 2%.

A backlog of projects that homeowners have deferred and the impact of the federal stimulus package are among factors that should help sales rebound in 2010 with a 6.9% increase, according to HIRI's forecast.

The comparison to a weak year and the expectation that existing home sales will bottom in 2009 while housing starts bottom in the second quarter are also expected to contribute to higher sales in 2010.

"We expect an acceleration of the cyclical rebound in home improvement product sales in 2011, with a 12% increase in the consumer market propelling total home improvement product sales to double-digit growth again for the first time since 2004," the group said.

A leading indicator of remodeling activity produced by Harvard University's Joint Center for Housing Studies in January pointed to homeowner improvement spending declining at an annual rate of 12.1% by the third quarter. The next update for the indicator is April 16.

Meanwhile, the American Hardware Manufacturers Association last week said its February index of industry confidence shows rising confidence in future sales, even though reported sales levels have remained consistently low. A larger percentage of respondents surveyed in February than in January expect sales will be higher than current levels, even though only 18% said they expect the federal stimulus package will be effective in improving the economy.

The biggest home-improvement retailers are scheduled to attend investor conferences throughout this week, and they're likely to be asked about recent trends.

Home Depot's executive vice president of U.S. stores, Marvin Ellison, didn't comment specifically on the retailer's 2009 sales and earnings outlook at a Raymond James & Associates conference Monday morning. But he said Home Depot, like other retailers, anticipates that 2009 will be a difficult year.

"We do anticipate further deterioration as credit markets continue to be stressed and unemployment rises," Ellison said. Home Depot is focused on improving customer service, having appropriate inventory and improving store appearance during the downturn.

Home Depot has another presentation scheduled Thursday at a Bank of America-Merrill Lynch conference, while Lowe's will present at the Raymond James conference on Wednesday.

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@dowjones.com