Once upon a time, President Reagan's decision to impose a 15-month pay freeze on federal civil servants might have sent shivrers down the spines of local retailers preparing for the holiday season, but this fall it has caused barely a tingle.
For a variety of reasons, many merchants are expecting only a modest Christmas this year, but few fear that the pay freeze on the area's largest wage base will significantly dampen the holiday cheer.
And while their projections in general are conservative, retailers are looking forward to this Yuletide -- especially after last year's slower-than-expected shopping season and the recent dry run in consumer spending.
Three of the factors expected to moderate the pay freeze's impact on retail sales are the shrinking size of the federal work force relative to the area's total work force; the slowdown in inflation, which makes a pay freeze less painful, and lowered expectations among federal workers, who had been budgeted for a 5 percent pay cut.
"People have gotten used to the way they have been living," said Robert Fogel, president of Irving's Sports Shops. "Inflation hasn't gone up that much, so the people will still do the same thing they are doing this year." He said he is optimistic that the heavy demand for sporting goods will result in exceptional sales at his chain, far above the 7 to 8 percent growth predicted for most stores.
"The freeze won't have a big effect on the furniture industry," said Louis Glickfield, chairman of Marlo Furniture. "There is enough housing being built and enough transfers into the area that the strength of the furniture industry will be strong. The growth of the area is very strong, and considering all the positive aspects of the economy in this area, the pay freeze should have a minimum effect."
At the area's two largest department stores -- The Hecht Co. and Woodward & Lothrop Inc. -- officials say there is no way to gauge the impact of the wage freeze. As Woodies' president Edwin K. Hoffman wryly noted, "It's hard to predict -- when they are given a pay increase, nothing seems to happen" to boost sales.
"The pay freeze will certainly put a new note of caution in a large customer base in the greater Washington area . . . at a time when there are some real questions in the air about consumer confidence and their willingness to spend," said a spokesman for the Greater Washington Board of Trade's retail bureau. "But balanced against the gaining private-sector domination of the Washington economy, the impact will be significantly less than it would have been five to 10 years ago."
According to figures from the D.C. Department of Employment Services, federal employes account for 18 percent of the area work force -- down from 23 percent in 1980. In 1975, U.S. civil servants represented a quarter of all metropolitan employes.
Under Reagan's order, 1.4 million federal civil servants will not receive a raise until January 1987. Reagan said he made his decision in light of the growing budget deficit, asserting that any raise would boost the deficit even more and threaten the economic recovery. Military personnel, however, will receive a 3 percent increase in October under legislation that has cleared the Senate and is pending in the House.
The Greater Washington Research Center -- an independent organization that analyzes economic and social trends in the region -- has calculated that the annual payroll of the federal civilian work force totaled about $8.4 billion in fiscal 1984. "If inflation averages 4 percent during the coming year, there will be a loss of effective purchasing power in the Washington area of $340 million by federal employes," the center said in its MarkeTrends newsletter.
But the newsletter noted there could be an even greater reduction in purchasing power because "it is likely that private employes will feel less pressure to give pay raises."
Yet, the newsletter added, "part of the buying effects may already have been felt because of the President's earlier budget recommendation of a 5 percent pay cut. As a result, some local area federal employes may have been more conservative than usual in their future financial commitments."
Retailers add that the impact of the freeze also may be offset by the step increases that many civil servants receive almost automatically with seniority. About one-third of civilian government workers receive these increases, which average about 3 percent of salary.
And, as Irving's Fogel noted, the continuing low inflation rate will make the freeze more bearable for government workers as well as for retailers.
"Initially, there will be a psychological impact that could tend to limit spending," said Eliot Benson, a financial analyst with Ferris & Co. "But fortunately, inflation has remained at a moderate level. As long as that continues, the impact of the freeze should not be that severe." Overall, financial analysts and economists believe that in spite of the freeze, Washington will continue as one of the best retail markets in the country, and that trend should continue during the holidays.
"I don't think [the] freeze will mean sales in the D.C. market will be poor," said Edward Weller of E. F. Hutton & Co. "Washington is one of the better areas of the country in which to be doing business. It is not the kind of place to have a recession."
Some retailers, in fact, say they welcome the freeze because it sends business their way. Take the catalogue showroom firm Evans Distributors & Jewelers Inc., for example. "Our experience is that when the economy tightens up, we do better -- we don't suffer," said Evans vice president Tom Bothe.
Retailers are looking forward eagerly to the Christmas season, particularly after a long dry spell of consumer buying that began last year, even though many don't expect to post the double-digit sales gains they have made in previous seasons.
"We're expecting a strong response from the consumer for the rest of the year," said Bernard M. Fauber, chairman of K mart Corp., the nation's second-largest retailer. "But it will be nothing like [our expectations for] last year or not even as great as we had predicted earlier, when we had hoped to see a 7 to 8 percent improvement in sales over last year. I would be happy to see a 3 to 5 percent increase in sales . . . over last year, for the Christmas season."
One reason for the sluggish increase, Fauber said, is "the heavy debt load consumers have assumed." Installment debt reached an unprecedented 18.6 percent of disposable income in June, according to Data Resources Inc, an econometrics firm. "Consumer spending has outpaced personal income gains; as a result, the saving rate dropped to 3.4 percent [of disposable personal income] in July, its lowest level since 1947," DRI said in its latest forecast of the economy. "The worry is not that consumers will retrench, but that they can no longer allow spending to outpace income," DRI added.
As a result, K mart and many other retailers are being very cautious in their Christmas expectations. "We're being very conservative in our outlook," said Hanne Merriman, president of Garfinckel's. "People are being very careful in what they are spending; we have to be careful in what we're offering."
W. Bell & Co., seeing "mixed economic signals," is expecting "a soft retail environment," said vice president Martin Pfeifer. "We're buying very conservatively."
At Raleighs Store Corp. -- where "it has been a long summer," president Neal J. Fox is not "looking for enormous gains this fall." Of particular concern to Fox and other retailers is this year's shorter Christmas selling season, which has six fewer days because Thanksgiving falls later this November than last. "That could really hurt retailers," he said.
Hecht's, however, is more optimistic, predicting a double-digit increase in its sales.
With retailers planning conservatively, consumers may find far fewer sales than in recent years -- particularly less than last year, when retailers were over-optimistic and then had to cut prices at the last minute to boost sales.
Retailers again will offer specially purchased goods at low prices, said Woodies' Hoffman.
"It will still be dog-eat-dog with sales." But, he added, "It won't be as bad as last year."