The special deficit-reduction panel appears to be making little progress in trimming more than a trillion dollars from the federal budget — and that has prompted some to question whether this will take a bite out of consumer spending this holiday season.
The Super Committee has been negotiating behind closed doors since September, and they have until Nov. 23 — that’s the day before Thanksgiving — to reach an agreement on at least $1.2 trillion in deficit reduction measures.
Some retail experts fear that further political gridlock in Washington will make American consumers even more hesitant to spend during the busiest shopping period of the year.
When the Super Committee was forged out of the debate on whether to raise the debt ceiling, consumers reigned in spending.
But the circumstances will be different this November than they were in August, says Paul Ashworth, chief U.S. economist at Capital Economics.
The debate in August could have resulted in the federal government being shut down, he says. If this had happened, federal employees would have been laid off, U.S. contractors wouldn’t have gotten paid, and there were even discussions about Social Security checks being withheld.
This is not the case with the Nov. 23 deadline. If the committee doesn’t reach an agreement, automatic cuts will be made across the board affecting areas such as national security and domestic discretionary spending, but a shutdown won’t be imminent.
But others see the event as a potential risk.
One of the problems plaguing retailers is a lack of exciting new products to inspire consumers to shop, says Marshal Cohen, chief industry analyst at NPD Group.
“There is almost nothing new…to get the consumer excited beyond just the traditional holiday categories,” Cohen says.
Against this backdrop, the political discussions could create a big distraction for consumers. And that’s something retailers don’t want when most analysts, including Cohen, expect marginal growth at best this holiday season.
It also may be yet another reason for consumers to be downbeat. Numerous consumer surveys have shown that consumers are worried about the economy and about their rising household expenses.
One of the latest, a survey conducted by Deloitte, showed that two-thirds of consumers expect the economy to stay the same or weaken next year. As a result many consumers reported that they would be trimming their gift list and 42 percent said they planned to spend less this year.
Still, Deloitte estimates retail sales will rise between 2.5 and 3 percentthis holiday season.
“It’s a downbeat story, but I have faith that they will spend more than they say they will,” says Alison Paul, vice chairman and U.S. retail & distribution leader at Deloitte LLP.
Not only do consumers often say one thing in surveys and actually do another thing, but there are groups of consumers who are not paring back as much.
Households earnings $100,000 or more annually expect to trim a mere 2 percent off of their gift spending to shell out an average of $812 on gifts this holiday season, compared with a 26 percent drop to $291 on gifts among those earning less than $100,000.
There also is something compelling about shopping on Black Friday, the day after Thanksgiving, and on Cyber Monday, the Monday that follows it, because consumers expect that is when they can snag the best deals.
Nearly three-quarters of the more than 5,000 consumers polled by Deloitte said they would hold off until after Thanksgiving to make the majority of their holiday purchases.
Last year, Black Friday was the day that rang up the most sales of the holiday season, and Cyber Monday was the busiest day for online retailers. There also was a huge surge in spending on Thanksgiving itself, especially among consumers using mobile devices.
“Consumers tend to follow the same patterns,” says John Squire, chief strategy officer at IBM Coremetrics.
“That is when there are the very best promotions and offers, when inventories are at their highest, and when shipping deals are the best,” he says.
And the lure the Black Friday bargain may trump what politicians in Washington do or say.