October 4, 2013
Will Shutdown Bah-Humbug Holidays For Retailers?
The National Retail Federation’s (NRF) announcement yesterday that it was projecting a sales increase of 3.9 percent for November and December suggested retailers could look forward to good, if not great, results this holiday season. The NRF press release, however, came with a caveat.
"Our forecast is a realistic look at where we are right now in this economy — balancing continued uncertainty in Washington and an economy that has been teetering on incremental growth for years," said Matthew Shay, president and CEO of NRF, in a statement. "Overall, retailers are optimistic for the 2013 holiday season, hoping political debates over government spending and the debt ceiling do not erase any economic progress we’ve already made."
The decision by the GOP leadership in the House of Representatives earlier this week to not allow a floor vote on a so-called "clean CR" has left the two houses of Congress at an impasse resulting in a shutdown of much of the federal government.
The shutdown, according to Goldman Sachs, will take 0.2 percent out of the national economy every week that it goes on. Many business leaders, traditional allies of the GOP, are urging Republican to find a way to reopen the government and responsibly address the debt limit situation. The political circus around the last round of debt limit discussions in 2011 led Standard & Poor’s to lower the credit rating of the U.S.
In a letter to the House of Representatives sent before the shutdown this week, the U.S. Chamber of Commerce, citing support from 251 organizations including NRF, National Grocers Association, National Restaurant Association and Retail Industry Leaders Association, wrote: "With the U.S. economy continuing to underperform, the federal government needs to maintain its normal operations pending a successful outcome of broader budgetary reforms. It is not in the best interest of the employers, employees or the American people to risk a government shutdown that will be economically disruptive and create even more uncertainties for the U.S. economy. Likewise, we respectfully urge the Congress to raise the debt ceiling in a timely manner and remove any threat to the full faith and credit of the United States government."
- NRF Forecasts Marginal Sales Gains This Holiday Season – National Retail Federation
- Multi-Industry Coalition Letter Regarding the Continuing Resolution and Debt Limit – U.S. Chamber of Commerce
- GOP Group Urges Detente on Health Law – The Wall Street Journal (sub. required)
- GOP Moderates Rally to Stop the Government Shutdown – The Fiscal Times
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Recent Discussions
Discussion Questions
What effect do you think the government shutdown will have on retail sales this holiday season? What are your expectations for what will happen over the debt limit? What will than mean for the retail industry?
Poll
If the shutdown doesn’t end soon, it will have a VERY large impact on the retail industry. And if we default on the debt, Katie bar the door. It’ll be awful.
The government shutdown will have a negative effect for retailers who were looking to start promoting the holiday season in October. Retailers who were aiming for an early shopping season should consider pushing back on these efforts due to the government shutdown situation.
Almost all US business have some relationship with the US government, and bottom line and employees are going to be impacted. It is my understanding Black Friday loss-lead imports from China are not going to be delivered as expected. Retailers should have an emergency huddle, and may have to realign their holiday season strategy to current events.
The longer the shutdown continues, the greater the effect it will have on retail sales and the holiday season. But the shutdown is only the prelude. If the GOP House refuses to promptly deal with the debt limit, the effect could be significantly greater. Let’s hope that common sense prevails and that the CR and debt limit are both resolved quickly and reasonably, before both have a chance to hurt the economy and retail sales.
Retail, like the stock market, depends on optimism and steadiness. Things a few in Washington are refusing to acknowledge.
This whole shutdown is a charade, played out by power grabbing politicians, which in effect can hurt business in the short term. None of us want businesses to be hurt, but some pain and suffering needs to take place if we are ever going to become fiscally solvent.
This goes way beyond anyone’s understanding of running a budget, as businesses do not operate like the government, which is a good thing. I am a conservative capitalist, who gets upset every time the folks in DC battle over budgets, and policies that make no sense to anyone, and it has gotten worse over the years.
Yes, business will take a small hit over this shutdown, but the long-term effect of the budget scenario is more of a concern for all of us, and it is being swept under the carpet. I hope that is gets resolved responsibly, but it probably will not, and that is how I feel. Somebody out there who feels like this new crisis will make things better long-term, please let me know, while the politicians fight with each other.
A starting point is NRF’s forecast of 3.9% increase is optimistic at best. Annually, NRF provides an optimistic forecast that is rarely achieved. A more realistic projection is 2.9%. The Washington impasse is the result of the Democrats saying it is our way or the highway, and the Republicans’ efforts to fix a truly destructive law. The shut down will have minimum impact on holiday sales. The number of people directly affected is small. Should the shutdown last a month or more, the holiday sales decline might reach .2%.
I’m cautiously optimistic that the government shutdown and debt limit fights will be resolved in the next couple of weeks, perhaps in the context of agreements about spending levels, the “medical device” tax, and so forth. So I don’t see this dragging down retail spending – however, if I’m wrong, there will be far bigger problems driven by furloughed employees, falling equity prices, and so forth.
The real question is why the NRF is projecting a 3.9% increase in the first place. This organization tends to over-forecast holiday sales every year, and all signs point to the sort of modest (2-3%) gains that we have been seeing all year.
The following is from an IHS email today: “Growth in the fourth quarter has been downgraded from 2.2 percent last month to 1.6 percent, largely because of the shutdown and consumer and business reactions to the increased uncertainty caused by the potential debt ceiling spending restrictions.”
I don’t think this will have any meaningful effect on good retailers. For poorly run retailers, this will be just another excuse to blame their shortcomings on. Either way, with many people including me now about to face skyrocketing health insurance premiums, or will be losing coverage, this could have an economic impact like the government shutdown. Whatever, it’s always going to be something no matter what and in the end it will all even out.
Even with a son in a government role, my read is that this situation will not slow the shopper. To slow a Millennial shopper it takes more than your government fighting and going on pause – you would need to steal their phone, tablet, and put heavy locks on the store doors.
I am sure there will be some issues on the retailer side of things – especially with the new healthcare program hitting at the same time. Small retailers in my area are more focused on how to deal with that then they are even thinking about the lights out in DC issues.
Last, talked to a few small retail friends this week – asked what their biggest issue was…the answer? Figuring out the right way to handle promotions this Fall and holiday season.
Tom…on the retail road.
The “government shutdown” itself will have little or no effect on retail sales this holiday season. What will impact the holiday selling season is all the factors surrounding it.
As consumers realize their health insurance premiums, auto insurance premiums, and cost of goods have skyrocketed, these factors will curtail spending just as the threshold of gasoline rising over $4 per gallon has done.
Currently, gas prices remain mostly under $4 per gallon. In addition, the deadlines for Obamacare don’t close in until March 2014.
However, employers in retail and all other sectors are and will take actions well prior to then to recoup their costs. Hours are being cut throughout all sectors. Prices are rising and will rise even higher to pass on the higher triple digit percentage premium increases.
The debt limit also impacts consumers, but it is again a downstream affect. The timing of the event could allow for consumers to spend into that as well, but will feel the pain later on.
Due to the timing of both of these events, consumers may spend into them prior to shutting down their spending completely. That being the case, a successful holiday retailing season is entirely possible.
As I have said in the past, anything above zero in the gain column is good. Playing the percentage game at this date is wasteful speculation.
How can we, in our own inimitable way, be our own worst enemy? How can we continue to elect representatives who, once inside the DC Beltway, become only out for their personal recognition and reelection so they gain lifetime benefits the likes of which few of us will attain?
Back to the question: Retailers should not worry. Our representatives are still receiving their pay and benefits. Maybe they will spend enough to make up for the deficit of those who need it and can’t.
Max Goldberg has it right.
Members of the Tea Party minority in the House have indicated that a debt default may be a good idea; there’s no question but that this would torpedo the recovery. There’s real reason to be fearful. Let’s hope the Speaker listens to people who are better educated.
As I sit here on vacation in Moab, UT on a now (national) parkless vacation, I can tell you there is very definitely a local impact on hotel, tour and restaurant owners as they twiddle their thumbs – and count lost revenue – in now empty facilities. Of course the flip side of that is the people who cancelled will now have that unspent vacation money available for purchases later; except of course for the tens of thousands of foreigners who left, in disgust, and perhaps never to return…more denarii for Deutschland, I guess.
If the shutdown is over at the end of the week and the debt ceiling increase is approved, holiday shopping should be fine. However, the likelihood of both of those passing with more than just a few month’s guarantee is pretty low, so the economy looks to be in for rocky times and holiday season sales will be the first barometer. Right now it is not looking good.
Unlike others posting here, I’ll disagree that this is the big downer that it is in the short-term, assuming that the House Speaker is true to his word and will ultimately pass a bill to avert default, even if it means violating the Hastert rule.
By holiday, things will be resolved and there’s even a chance that the minority hijacking the GOP will have their power base eroded, or at least eclipsed by the “traditional” and more centrist Republicans along with the moderate Democrats.
Yes, I’m hopeful and optimistic but every day there are more in Congress having the resolve to speak out.
As most here agree, the longer the shutdown the deeper the negative impact. If it ends next week, probably not too much damage done.
If, however, it rolls over into the debt limit debate and that doesn’t get resolved, the economy as a whole – and therefore retail fortunes – will begin to dissolve.
Hard to say what will happen with the debt limit. The Democrats – and probably many moderate Republicans will want to see it raised quickly and quietly. If the Tea Party continues to steer the House, an economically dangerous gridlock could continue for the foreseeable (short-term) future.
My bet? Public outrage on both sides of the aisle will force a compromise.
1. None
2. They will fight awhile…
3. Nothing
I doubt it will have much of an impact. I think attitudes toward Washington are pretty well cooked into the cake already, and I expect everybody to come to an agreement just before the debt ceiling deadline hits.
There are so many aspects of government that typically don’t directly affect consumers in their daily lives. The new problems in Washington are now changing all that. I know of a single mother whose health insurance has increased $300 per month since the new healthcare act has commenced. Impacts like that will most assuredly affect consumer spending for the foreseeable future.
I would love to see a comparison between projections like these and actuals. I’d bet the correlation is terrible.
Retailers would do better to focus on Reinhold Niebuhr’s mantra. They’d be wise to accept things like this that they cannot change and instead put their energy into being courageous about changing the things they can actually change.
As we all know, the retail industry is quite good at looking for excuses and pushing talking points. (Easter this year was too late, holiday shopping was impacted by too much snow, etc. etc.) The reality is that people who have a perceived need, and have some cash or some flex left on their credit card will shop and will buy, regardless of what’s going on around them or in our nation’s capital or in their neighbors’ lives.
Both socially and professionally, I interact with business owners, producers and CFOs who appear to me to pretty much run the gamut on the political spectrum. They are far, far more concerned that politicians in Washington and in the states recognize, and then try to do something productive about the country’s fiscal irresponsibility, than they are about this season’s sales or the silly political theater being performed in D.C. by both parties this week.
The apparent desperation and promotions which accompanied recent fall and back to school marketing suggest that holiday sales will be considerably lower than a 3.9 percent growth.
The longer this goes, the more likely the uncertainty felt in the financial markets will pentrate the consumer mindset and impact retail sales. The current situation is both apalling and embarrasing, but will not likely impact retail sales unless it continues to include failure to lift the debt ceiling.
I think the fighting and arguing will go for a week or maybe to the debt-extension deadline and then be resolved. A few weeks later that will be forgotten.
The shutdown is already having an effect, will continue to do so, and will get worse, not only if not resolved, but also become far worse if the debt limit is not resolved. Additionally, the current inability for congress and senate to be productive and address ongoing governing needs will continue to have an effect.
Yes Virginia, there will be Christmas shopping! Unless of course we are all sitting at home watching our 401Ks go down the tubes and wondering how things ever spun out of control. Shopping and the value of your house and investments are intrinsically linked. If Wall Street decides to teach the politicians a lesson (and the rest of us) then it won’t be a very merry Christmas after all.
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If the shutdown doesn’t end soon, it will have a VERY large impact on the retail industry. And if we default on the debt, Katie bar the door. It’ll be awful.
The government shutdown will have a negative effect for retailers who were looking to start promoting the holiday season in October. Retailers who were aiming for an early shopping season should consider pushing back on these efforts due to the government shutdown situation.
Almost all US business have some relationship with the US government, and bottom line and employees are going to be impacted. It is my understanding Black Friday loss-lead imports from China are not going to be delivered as expected. Retailers should have an emergency huddle, and may have to realign their holiday season strategy to current events.
The longer the shutdown continues, the greater the effect it will have on retail sales and the holiday season. But the shutdown is only the prelude. If the GOP House refuses to promptly deal with the debt limit, the effect could be significantly greater. Let’s hope that common sense prevails and that the CR and debt limit are both resolved quickly and reasonably, before both have a chance to hurt the economy and retail sales.
Retail, like the stock market, depends on optimism and steadiness. Things a few in Washington are refusing to acknowledge.
This whole shutdown is a charade, played out by power grabbing politicians, which in effect can hurt business in the short term. None of us want businesses to be hurt, but some pain and suffering needs to take place if we are ever going to become fiscally solvent.
This goes way beyond anyone’s understanding of running a budget, as businesses do not operate like the government, which is a good thing. I am a conservative capitalist, who gets upset every time the folks in DC battle over budgets, and policies that make no sense to anyone, and it has gotten worse over the years.
Yes, business will take a small hit over this shutdown, but the long-term effect of the budget scenario is more of a concern for all of us, and it is being swept under the carpet. I hope that is gets resolved responsibly, but it probably will not, and that is how I feel. Somebody out there who feels like this new crisis will make things better long-term, please let me know, while the politicians fight with each other.
A starting point is NRF’s forecast of 3.9% increase is optimistic at best. Annually, NRF provides an optimistic forecast that is rarely achieved. A more realistic projection is 2.9%. The Washington impasse is the result of the Democrats saying it is our way or the highway, and the Republicans’ efforts to fix a truly destructive law. The shut down will have minimum impact on holiday sales. The number of people directly affected is small. Should the shutdown last a month or more, the holiday sales decline might reach .2%.
I’m cautiously optimistic that the government shutdown and debt limit fights will be resolved in the next couple of weeks, perhaps in the context of agreements about spending levels, the “medical device” tax, and so forth. So I don’t see this dragging down retail spending – however, if I’m wrong, there will be far bigger problems driven by furloughed employees, falling equity prices, and so forth.
The real question is why the NRF is projecting a 3.9% increase in the first place. This organization tends to over-forecast holiday sales every year, and all signs point to the sort of modest (2-3%) gains that we have been seeing all year.
The following is from an IHS email today: “Growth in the fourth quarter has been downgraded from 2.2 percent last month to 1.6 percent, largely because of the shutdown and consumer and business reactions to the increased uncertainty caused by the potential debt ceiling spending restrictions.”
I don’t think this will have any meaningful effect on good retailers. For poorly run retailers, this will be just another excuse to blame their shortcomings on. Either way, with many people including me now about to face skyrocketing health insurance premiums, or will be losing coverage, this could have an economic impact like the government shutdown. Whatever, it’s always going to be something no matter what and in the end it will all even out.
Even with a son in a government role, my read is that this situation will not slow the shopper. To slow a Millennial shopper it takes more than your government fighting and going on pause – you would need to steal their phone, tablet, and put heavy locks on the store doors.
I am sure there will be some issues on the retailer side of things – especially with the new healthcare program hitting at the same time. Small retailers in my area are more focused on how to deal with that then they are even thinking about the lights out in DC issues.
Last, talked to a few small retail friends this week – asked what their biggest issue was…the answer? Figuring out the right way to handle promotions this Fall and holiday season.
Tom…on the retail road.
The “government shutdown” itself will have little or no effect on retail sales this holiday season. What will impact the holiday selling season is all the factors surrounding it.
As consumers realize their health insurance premiums, auto insurance premiums, and cost of goods have skyrocketed, these factors will curtail spending just as the threshold of gasoline rising over $4 per gallon has done.
Currently, gas prices remain mostly under $4 per gallon. In addition, the deadlines for Obamacare don’t close in until March 2014.
However, employers in retail and all other sectors are and will take actions well prior to then to recoup their costs. Hours are being cut throughout all sectors. Prices are rising and will rise even higher to pass on the higher triple digit percentage premium increases.
The debt limit also impacts consumers, but it is again a downstream affect. The timing of the event could allow for consumers to spend into that as well, but will feel the pain later on.
Due to the timing of both of these events, consumers may spend into them prior to shutting down their spending completely. That being the case, a successful holiday retailing season is entirely possible.
As I have said in the past, anything above zero in the gain column is good. Playing the percentage game at this date is wasteful speculation.
How can we, in our own inimitable way, be our own worst enemy? How can we continue to elect representatives who, once inside the DC Beltway, become only out for their personal recognition and reelection so they gain lifetime benefits the likes of which few of us will attain?
Back to the question: Retailers should not worry. Our representatives are still receiving their pay and benefits. Maybe they will spend enough to make up for the deficit of those who need it and can’t.
Max Goldberg has it right.
Members of the Tea Party minority in the House have indicated that a debt default may be a good idea; there’s no question but that this would torpedo the recovery. There’s real reason to be fearful. Let’s hope the Speaker listens to people who are better educated.
As I sit here on vacation in Moab, UT on a now (national) parkless vacation, I can tell you there is very definitely a local impact on hotel, tour and restaurant owners as they twiddle their thumbs – and count lost revenue – in now empty facilities. Of course the flip side of that is the people who cancelled will now have that unspent vacation money available for purchases later; except of course for the tens of thousands of foreigners who left, in disgust, and perhaps never to return…more denarii for Deutschland, I guess.
If the shutdown is over at the end of the week and the debt ceiling increase is approved, holiday shopping should be fine. However, the likelihood of both of those passing with more than just a few month’s guarantee is pretty low, so the economy looks to be in for rocky times and holiday season sales will be the first barometer. Right now it is not looking good.
Unlike others posting here, I’ll disagree that this is the big downer that it is in the short-term, assuming that the House Speaker is true to his word and will ultimately pass a bill to avert default, even if it means violating the Hastert rule.
By holiday, things will be resolved and there’s even a chance that the minority hijacking the GOP will have their power base eroded, or at least eclipsed by the “traditional” and more centrist Republicans along with the moderate Democrats.
Yes, I’m hopeful and optimistic but every day there are more in Congress having the resolve to speak out.
As most here agree, the longer the shutdown the deeper the negative impact. If it ends next week, probably not too much damage done.
If, however, it rolls over into the debt limit debate and that doesn’t get resolved, the economy as a whole – and therefore retail fortunes – will begin to dissolve.
Hard to say what will happen with the debt limit. The Democrats – and probably many moderate Republicans will want to see it raised quickly and quietly. If the Tea Party continues to steer the House, an economically dangerous gridlock could continue for the foreseeable (short-term) future.
My bet? Public outrage on both sides of the aisle will force a compromise.
1. None
2. They will fight awhile…
3. Nothing
I doubt it will have much of an impact. I think attitudes toward Washington are pretty well cooked into the cake already, and I expect everybody to come to an agreement just before the debt ceiling deadline hits.
There are so many aspects of government that typically don’t directly affect consumers in their daily lives. The new problems in Washington are now changing all that. I know of a single mother whose health insurance has increased $300 per month since the new healthcare act has commenced. Impacts like that will most assuredly affect consumer spending for the foreseeable future.
I would love to see a comparison between projections like these and actuals. I’d bet the correlation is terrible.
Retailers would do better to focus on Reinhold Niebuhr’s mantra. They’d be wise to accept things like this that they cannot change and instead put their energy into being courageous about changing the things they can actually change.
As we all know, the retail industry is quite good at looking for excuses and pushing talking points. (Easter this year was too late, holiday shopping was impacted by too much snow, etc. etc.) The reality is that people who have a perceived need, and have some cash or some flex left on their credit card will shop and will buy, regardless of what’s going on around them or in our nation’s capital or in their neighbors’ lives.
Both socially and professionally, I interact with business owners, producers and CFOs who appear to me to pretty much run the gamut on the political spectrum. They are far, far more concerned that politicians in Washington and in the states recognize, and then try to do something productive about the country’s fiscal irresponsibility, than they are about this season’s sales or the silly political theater being performed in D.C. by both parties this week.
The apparent desperation and promotions which accompanied recent fall and back to school marketing suggest that holiday sales will be considerably lower than a 3.9 percent growth.
The longer this goes, the more likely the uncertainty felt in the financial markets will pentrate the consumer mindset and impact retail sales. The current situation is both apalling and embarrasing, but will not likely impact retail sales unless it continues to include failure to lift the debt ceiling.
I think the fighting and arguing will go for a week or maybe to the debt-extension deadline and then be resolved. A few weeks later that will be forgotten.
The shutdown is already having an effect, will continue to do so, and will get worse, not only if not resolved, but also become far worse if the debt limit is not resolved. Additionally, the current inability for congress and senate to be productive and address ongoing governing needs will continue to have an effect.
Yes Virginia, there will be Christmas shopping! Unless of course we are all sitting at home watching our 401Ks go down the tubes and wondering how things ever spun out of control. Shopping and the value of your house and investments are intrinsically linked. If Wall Street decides to teach the politicians a lesson (and the rest of us) then it won’t be a very merry Christmas after all.