NEW YORK, N.Y. – Will Washington be the Grinch who stole Christmas?
After weeks of bickering between Congress and the White House, President Barack Obama on Wednesday signed into law a plan that ended a partial 16-day government shutdown and suspended the nation’s debt limit until early next year.
But the measure, which comes just weeks ahead of the holiday shopping season, only temporarily averts a potential default on U.S. debt that could send the nation into a recession.
Retailers hope that short-term uncertainty won’t stop Americans from spending during the busiest shopping period of the year, but they’re fearful that it will.
“I am not nervous, but I am mindful,” said Jay Stein, chairman of Stein Mart, a 300-store chain that sells home goods and clothing. “The biggest enemy of consumer confidence is uncertainty.”
Retailers and industry watchers say Washington gridlock already has caused shoppers to hold back on purchases.
The number of people going into stores nationwide dropped 7.5 per cent for the week that ended Oct. 5 and 7.1 per cent during the following week compared with a year ago, according to ShopperTrak, which measures foot traffic at 40,000 retail outlets across the country.
Men’s clothier Jos. A. Bank Clothiers and furniture chain Ethan Allen said their customers cut back in recent weeks. And auto sales, which had been strong, trailed off last week, with experts blaming Washington lawmakers.
Retailers say the agreement that lawmakers approved, which funds the government until Jan. 15 and gives the Treasury the ability to borrow above its limit until Feb. 7, may not be enough to alleviate shoppers’ concerns.
Robert N. Wildrick, chairman of Jos. A. Bank, which has 623 U.S. stores, said retailers can’t afford more uncertainty during the holiday shopping season. “The more this nonsense goes on …. the more scared (consumers) become,” he said.
Even before the stalemate in Washington, retailers had reasons to be cautiously optimistic about the holiday season, which accounts for up to 40 per cent of retailers’ annual revenue. While the job and housing markets are improving, that hasn’t yet translated into sustained spending increases among shoppers.
But retailers spend money on ads, order additional inventory and add sales staff during the holidays hoping shoppers will spending freely. If they don’t, stores have to discount, which eats away profits.
The National Retail Federation, the nation’s largest retail group, had forecast in early October that sales would climb 3.9 per cent in November and December to $602.12 billion, higher than last year’s 3.5 per cent gain. But the forecast didn’t account for the prolonged shutdown.
Jack Kleinhenz, chief economist for the Washington, D.C.-based group, told The Associated Press that he may lower the projection after he sifts through retail sales and jobs data, reports that had been delayed because of the shutdown. The uncertainty could hurt sales.
“It’s like having an ongoing fever that you would like to shake but just doesn’t go away,” Kleinhenz said. “That causes a backup in decision-making from consumers and businesses.”
Take Nino Rodriguez, who was already planning to cut back spending on gifts for his four children ages 3 to 21 by about 25 per cent to $1,500 as he juggles stagnant wage gains with college tuition costs.
Now, the Chicagoan plans to cut another $500 from the holiday budget because of uncertainty. In particular, he’s concerned about having government aid checks suspended for teenage sons who have special needs.
“The doomsday clock is just one second less than what it was before,” said Rodriguez, who works in the hospitality business. “All this just heightens our awareness of spending.”
This isn’t the first time that debt-and-spending stalemates have hurt shoppers’ mood during the holidays. Last year, Americans worried about tense negotiations in Washington to resolve the fiscal cliff, a simultaneous increase in tax rates and a decrease in government spending.
Congress and the White House reached a deal on Jan. 1 that prevented income taxes from rising for most households, but many store executives blamed the uncertainty for a slowdown in sales in December. In November 2012, sales were up 4.7 over the year ago period, but rose only 2.4 per cent in December.
And in August 2011 when there was market turmoil and political strife over raising the federal debt ceiling, consumer sentiment fell to a 31-year low, according to the Thomas Reuters/University of Michigan survey.
Jeff Landis of Chicago-based Montopoli Custom Clothiers recalls those days when business was quiet and he had to delay ordering fabric and call his wealthy customers. He said he’s seeing the same scenario play out now.
“This is a buzz kill,” he said.
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