No group is more eager to see the budget debates in Washington, D.C., get resolved than America’s retailers. With the holiday shopping season at hand, removing a big cloud over the heads of consumers is essential to sales.
In a letter sent to congressional leaders last week, Matthew Shay, president of the National Retail Federation, said it is imperative a resolution be reached to end the partial government shutdown and raise the nation’s debt ceiling.
“Retailers already have more than 4 million cargo containers of merchandise on their way to store shelves for the holidays. Even if Customs and other agencies can get the merchandise off the docks without a hitch, shutdown-fueled consumer worries over the economy could leave that merchandise sitting on shelves well past Christmas. That would be a severe hit not just for retailers, but in every industry whose jobs depend on consumer spending,” Shay said in the letter.
A cursory check of shopping centers around San Diego County shows a modest but measurable drop in activity.
The Deloitte Consumer Spending index, which comprises four components -- tax burden, initial jobless claims, real wages and home prices -- fell in September for the second consecutive month. The index is an indicator of future consumer spending.
“If the government shutdown is short-lived, retailers may not feel a noticeable impact, but if it persists, consumers may pause at the beginning of the holiday season. With many retailers planning early promotions this year, shifts in consumer sentiment will likely test retailers’ scenario planning techniques,” said Alison Paul of Deloitte.
Consumers, to be sure, are ready to spend. The NRF is forecasting spending this holiday season will top $602 billion, an increase of 3.5 percent over 2012. To accommodate the increase in sales, companies are expected to hire more than 720,000 seasonal workers.
Many of those jobs could be at risk if the budget issues are not resolved.
“Since the very modest growth the U.S. economy has experienced following the 2008 recession has been attributed to the willingness of the American consumer to keep shopping, a lasting decline in consumer confidence is likely to translate into increased unemployment and slower growth in the months to come,” said the NRF’s Shay.
The University of Michigan’s consumer sentiment index released Friday bears out the growing caution in many households. It shows a drop in attitudes during the first two weeks of October as consumers expressed uncertainty about future economic trends and their own personal finances.
“This will raise talk that the ongoing standoff in Washington is weakening confidence in future job and earnings prospects,” cites the report.
Bottom line, consumer spending and consumer confidence go hand-in-hand.
“The ‘feel-good factor’ is hugely important to driving retail sales. When people feel good, they like to shop. Overall, consumers remained cautious and continued to search for the best deals,” said Sarah Quinlan of Market Insights for MasterCard Advisors.