Washington could take away cheer from holiday shopping season

October 29, 2013

Washington could play the Grinch as America shops this holiday season. And it won’t be the first time.

Consumers shopped with some measure of confidence last month, according to government data released Tuesday. But that was before the federal government shut own for more than two weeks.

Since then, key measures of consumer sentiment have plunged. The latest indicator — October’s consumer confidence index, released Tuesday — fell nearly 10 points from a revised measure of 80.2 last month, the biggest drop in two years.

Americans are frustrated with government squabbles and anxious about the economy, said Chris Christopher, senior principal economist at IHS Global Insight.

The shutdown shook consumer confidence, he said, and a tepid September jobs report didn’t help. Consumers had already been expected to be cautious in their spending this year, according to holiday surveys by consulting firms Accenture and Deloitte.


That could dampen the critical end-of-the-year shopping season for retailers, which are also contending with a shortened season, analysts said. (There are four weeks between Thanksgiving and Christmas this year, one fewer holiday shopping week than in 2012.)

Retail sales dipped 0.1 percent in September, to a seasonally adjusted $426 billion, according to the Commerce Department. But excluding automobiles, sales rose 0.4 percent from the previous month. Sales are 3.2 percent higher than a year ago.

The sectors with the biggest increases were electronics and appliances — probably driven by purchases of Apple’s new iPhones — and food services. Clothing sales declined half a percent, while online retail sales increased 0.4 percent.

September’s report follows a weak back-to-school shopping season in August, another important sales period for retailers.

For both retailers and consumers, the latest Washington standoff is filled with a sense of deja vu, analysts said. One year ago, the fiscal-cliff debate was in full swing. Two years ago, it was the debt-ceiling debate.

“The last thing the retailers needed was this shutdown,” Christopher said.

Even small-business owners are bracing for the economic aftershocks of the shutdown, according to a survey released Tuesday by Manta, an online small-business directory and network.

More than 40 percent of owners said they expect slower sales during the holidays than in previous years. Half of those surveyed said they expect the fallout from the government shutdown to prompt shoppers to spend less than they otherwise would.

The results stood in sharp contrast to a poll taken in September, before the shutdown began. At that time, the group found that 30 percent of small-business owners were more optimistic heading into this year’s holiday sales than last year. Now, just 13 percent say they are more optimistic about sales this season.

The National Retail Federation said Tuesday that it is sticking with its forecast of a 4 percent increase in holiday spending — for now.

Consumers are frustrated, but it hasn’t affected spending yet, said Pamela Goodfellow, consumer insights director at Prosper Insights & Analytics, a research firm.

Meanwhile, the group of Americans most likely to be hurt by continued economic uncertainty is the middle class, Christopher said. Wealthy shoppers will continue to bolster luxury brands, while financially strapped buyers seek good deals at discount retailers. But the middle-tier shops are losing ground, he said.

“The middle class are very worried,” Christopher said. “That makes the retail sales numbers a little bit jittery every month.”

Even if Washington manages to keep the peace during the holidays or the economic recovery takes off, the debt-ceiling battle starts again in January.

J.D. Harrison contributed to this report.

Amrita Jayakumar covers federal government contracting for Capital Business, The Post's local business publication.
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