Congress is turning into the Grinch Who Stole Christmas.
Current market research about consumer spending is finding that Americans are already cutting back on spending amid fear over the government shutdown and potential default on U.S. debt. Some forecasts show Americans are slashing their planned spending for the holidays.
And not by a little.
The International Council of Shopping Centers and Goldman Sachs found 40 percent of shoppers in a survey between Oct. 10 and 13 have already reined in their spending, with 47 percent of those who make $35,000 or less a year cutting back the most and 32 percent of those who make more than $100,000 also cutting back.
Meanwhile, the National Retail Federation found the average holiday shopper says they’ll spend $737.95 on things like gifts, décor and greeting cards, 2 percent less than the $752.24 they spent last year. As for what this means for what people will actually buy, the NRF found the pullback in spending means more people will cut back on items for themselves so they can buy gifts for others.
Last week, the NRF joined the U.S. Chamber of Commerce and the United Way Worldwide in urging the President and Congress to end the stalemate, and this week the organization’s president implored Washington to stop “legislating from crisis to crisis.”
The economic impact is already being felt as the Federal Reserve says economic growth slowed in a few key regions of the United States from September through early October, as businesses grew worried about a budget impasse that led to a partial government shutdown. Roughly two thirds of the U.S. economy is made up of consumer spending, so crises that spook the average person can have a quick impact on the overall economy.
Even if Congress and the White House agree on a deal to re-open the federal government and extend the debt limit until Spring, the U.S. economy has already lost about $20 billion of economic activity, said Sattar Mansi, professor in the finance department at the University of South Florida.
Directly affected Federal workers are apt to rein in their spending in reaction to the crisis and anticipation of the next one, in addition to the effects on anyone socially or otherwise connected to federal operations.
“This is sending a signal that we can not only not solve our problems, but maybe we’re not able to pay our debts,” Mansi said. “That’s a really bad signal to the markets, households and corporations.” Investors know the political makeup of Washington won’t change until the next election cycle next autumn.
In the short term, it’s possible retailers will pull back in the number of temporary workers they bring on for the holiday season, he said, and if U.S. debt is downgraded, then it’s very likely overall interest rates will start rising, and that will start affecting all kinds of corporate and consumer loans — from mortgages and car loans to lines of credit and credit card rates. “Everything is tied to interest rates,” he said. “And this kind of crisis hurts consumers in the short and long term.”
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