Inside This Issue - Opinion
Fiscal cliff a dark cloud hanging over retailers
October 29th, 2012
The nation’s retailers have received some mild encouragement of late in the form of several analyses that predict modest gains for the upcoming holiday selling season.
To cite just two examples, the National Retail Federation expects a 4.1% increase in consumer spending during the period, while Nielsen projects a 2.3% sales hike in 89 categories across five core departments — food, beverages, alcohol, health and beauty care, and home care.
The findings should give discounters, supermarkets and drug chains some added confidence as they enter a crucial phase of the business cycle. How stores perform in November and December is often said to determine a retailer’s profitability for the entire year.
But if mass marketers have cause to breathe easier about the prospects for holiday sales, the outlook for the industry in 2013 is decidedly murky. Without decisive action by President Obama and Congress during the seven weeks between election day and the start of the new year, the country will tumble over the edge of the so-called fiscal cliff, triggering dire consequences for the retailers and the entire U.S. economy.
If no agreement is reached, significant changes in tax and spending policy will automatically take effect. The Bush era tax cuts and the 2-percentage-point reduction in the payroll tax for Social Security will expire, while across-the-board spending cuts and reductions in Medicare payments to doctors will go into effect.
Were all those things to occur simultaneously, the Congressional Budget Office says that the economy would likely be plunged back into recession, with GDP falling 0.5% between the fourth quarter of this year and the fourth quarter of next year, and the unemployment rate rising to around 9% by the second half of 2013.
Based on painful recent experience, retailers know all too well the difficulty of operating in such an environment. Consumers retrench, comparable-store sales increases dwindle, and profitability comes under pressure.
To avoid such a scenario, the retail community needs to step forward immediately after the elections and let the president and members of the lame-duck Congress know that the gridlock that too often characterizes Washington is unacceptable. A measured, bipartisan effort on budget policy is necessary to keep the fragile financial recovery on track.