Wednesday, November 28, 2012

Budget battle weighs on shopping season

21 hrs.

The impasse in Congress over the ?fiscal cliff? could be the Grinch that steals Christmas if it isn?t resolved soon.

A record 247 million shoppers visited stores and websites over the four-day Black Friday weekend, up 9 percent from last year, according to the National Retail Federation. They spent an average $423 this year, up 6 percent from last year, for a total of $59 billion.

?I think there's a long way to go,? said retail industry analyst Dana Telsey. ?This season is going to be a battle almost every single day as you keep getting through to those ten days before (December) 25th. I think we go into a lull period now before you get the big sales coming again.?

Even without the uncertainty over a $500 million wave of tax hikes and spending cuts set to hit paychecks Jan. 1, retailers face some major challenges this holiday season.

With unemployment stuck at nearly at 8 percent, millions of households are without paychecks. Still reeling from last month?s Superstorm Sandy, millions of hard-hit households have had to dip into savings to clean up and rebuild. (Based on insurance data from previous storms, as much as half of the estimated $50 billion in property losses may have been uninsured.) Spending on lost household furnishings and damaged homes will divert funds that would otherwise have gone to holiday shopping.

Spending may also fade this holiday season because, continuing a decade-long trend, retailers kicked it off ?even earlier this year. Some consumers have already spent all or part of the money they budgeted for the holidays.

With so much economic uncertainty this year ?retailers started extending their promotional period,? said American Express vice chairman Ed Gilligan. ?Our research says that some people have been holiday shopping since Halloween or even earlier.?

Consumers who haven?t finished ? or even started ? their holiday shopping face continued uncertainty until Congress and the White House reach a budget deal. One of the biggest single hits to spending would come from the expiration of jobless benefits which, unless renewed, would remove $26 billion from consumer spending next year, according to the non-partisan?Congressional Budget Office.

Since the recession hit in 2007, Congress has battled multiple times over the extension of four separate? tiers? of extended benefits. As a result, most beneficiaries are keenly aware of just how vulnerable they are to a last-minute cutoff of those extended tiers.?

All those people facing expiration are going to keep their wallets closed, even if a last-minute deal is reached before year-end.

On Monday, a White House report estimated that letting taxes rise on middle-class families would take a? $200 billion bite out of consumer spending in 2013. That 1.7 percentage point cut in spending would knock 1.4 percentage points off GDP growth, according to the White House's National Economic Council and Council of Economic Advisers.

The retail industry, which has accounted for nine percent of employment growth since the U.S. recession ended in June 2009, would be among the hardest hit, the report said.

The CBO has estimated that, unless modified or postponed, the budget law set to take effect in January will push the U.S. economy back into recession and send the unemployment rate to 9.1 percent ? up from the current 7.9 percent. The budget package would send the nation?s gross domestic product, which grew at a 2 percent annual rate in the third quarter, into reverse, shrinking at a 0.5 percent rate, according to the CBO analysis.

Much of the contraction would come from a sharp slowdown in consumer spending, according to Monday?s analysis by the White House of the impact on middle class consumers.

The report was the latest volley by President Barack Obama in his ongoing political battle to strike a deal with Republicans that would extend tax cuts for families making less than $250,000 a year and raise taxes on people making more.

Shortly after his re-election, Obama called on Congress to extend tax cuts for 98 percent of American families even before wider deal is reached. The White House also wants lawmakers to fix the alternative minimum tax, set up decades ago to remove tax breaks for high-income households. Because it was not indexed for inflation, is has to be fixed every year to avoid snaring in millions of less affluent taxpayers.

Middle class households ? along with all wage earners - will also lose about $68 a week in spending money if the two percent payroll tax holiday is allowed to expire.

Source: http://www.nbcnews.com/business/economywatch/budget-standoff-weighs-holiday-shopping-season-1C7206758

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