NEW YORK — Francie Todd's two boys may not notice it, but there'll be fewer toys under the tree this Christmas.

Amid higher gasoline prices and other effects of Hurricane Katrina, Todd plans to cut her toy spending in half.

"You look at the economic climate overall, and this is not a good time to run up the credit cards," said Todd, of East Lansing, Mich., who will spend about $100 on toys for each child, down from $200 last year.

The human suffering from Katrina has also made Todd re-evaluate her budget for toys.

"We want to be more about the experience of giving, and less about the getting," she said.

Those sentiments, likely to be shared by millions of parents this holiday season, are a depressing turn for the $20 billion toy industry. If parents buy only one or two fewer toys each, the collective frugality could give the industry its third straight year of falling holiday sales.

Toy retailers, preparing for a difficult season, plan big discounts and other promotions.

"It's going to be extremely competitive to draw customers to their stores," said Jim Silver, editor in chief of Toy Wishes, a trade publication.

Price wars are already under way. Wal-Mart Stores Inc. began by slashing prices up to 30 percent on toys including the latest version of Hasbro Inc.'s electronic pet Furby, and Fisher-Price's "Shout" Dancing Elmo. Toys "R" Us Inc. responded by lowering its prices.

Wal-Mart, hurt last year when it didn't offer enough discounts, is expected to mark down more aggressively this year. Toys "R" Us, meanwhile, is offering more exclusive toys than it did last year, and other retailers are also ready for a battle to get customers into the store.

"We will absolutely be competitive with Wal-Mart this holiday season," said Lena Michaud, a spokeswoman at Target Corp., who declined to elaborate.

But price competition from discounters is just part of the problem — the toy industry needs some big hits this holiday season to make children want more toys. After suffering overall sales declines of 3 percent in both 2003 and 2004, toy companies have already seen sales of traditional toys — dolls, games and action figures, for example — drop 5 percent from January through August, according to NPD Group Inc., a market research firm in Port Washington, N.Y.

What's hurting traditional toy sales is that children are growing out of toys at a younger age and are more interested in trendy clothing and gadgets like digital music players. Meanwhile, the uncertain economy, particularly higher gasoline prices, have made parents more conservative when it comes to toy shopping, according to Silver.

Still, plenty of toys have caught parents' notice this year. Toys related to the latest "Star Wars" and "Batman" movies, such as Darth Vader helmets from Hasbro and the Batmobile from Mattel Inc., have done well, along with new versions of retro toys from the 1990s such as Play Along Inc.'s Sky Dancers and electronic learning products such as LeapFrog Enterprises Inc.'s Leapster.

For the holidays, the toy industry has high hopes for a series of children-friendly versions of adult gadgets, including VCamNow, a $79.99 video camera for 8-year-olds and ChatNow, a $74.99 pair of two-way radio communicators, both from Hasbro. Toy companies are also coming out with educational toys that are more fun to play with, like LeapFrog's $99.99 L-Max Learning system, which plugs into a television; and VTech Holdings Ltd.'s $89.99 V.Smile Pocket, a hand-held version of the original V.Smile learning system.

There are also more advanced high-tech dolls such as Amazing Amanda from Playmates Toys Inc., a doll that can recognize her "mommy's" voice and respond after hearing it just a few times.

"We are living in a gadget-driven world, and kids want their own gadgets," said Chris Byrne, a New York-based independent toy consultant. "It makes them feel like they're part of the whole culture."

John Barbour, president of Toys "R" Us' U.S. store division, believes there are "a lot more exciting products" than last year, and is counting on such hits as Leapfrog's Fly, an electronic learning pen, and electronic characters like iZ, from Zizzle Inc. and Hasbro's I-Dog, both of which can be hooked up to an iPod, to boost sales.

Still, Barbour, whose company recently was taken private, said this will be the year that parents will be thinking about value and getting the fair price.

Debbie Chasse, of Winchester, Mass., the mother of two girls, said she will be spending the same amount on toys as last year, but will be "looking for more value, things that catch their eye, rather than my eye."