Washington played the Grinch that stole Christmas this year as the partisan impasse over the budget deficit instilled fear that the nation will fall over the “fiscal cliff,” dashing consumer holiday spirits and spending.
The holiday shopping season started out with a bang, with sales hitting records over Thanksgiving weekend, but it ended with a whimper as consumers increasingly withdrew from the malls this month amid the din of discord and finger-pointing over whether to extend all or just some of the $600 billion in tax cuts and spending programs due to end next week.
Gauges of Christmas sales range from dismal to so-so. One group that tracks shoppers said it was the worst showing since the bleak Christmas of 2008, when the country was in the midst of a historic financial crisis. MasterCard’s SpendingPulse, which tracked sales from Oct. 28 to Dec. 24, said sales grew by only 0.7 percent over last year, but other trackers reported somewhat higher numbers.
The poor ending to the shopping season forced economists to lower their estimates for sales gains from the solid 3 percent to 4 percent range originally forecast. ShopperTrak is expecting a 2.5 percent increase in November and December sales, down from an earlier forecast of 3.3 percent. The International Council of Shopping Centers said growth during the final week before Christmas was only 0.7 percent, but it is sticking to its forecast of 3 percent for the whole season.
“What could have been a merry Christmas is going to turn to a ho-hum Christmas, and we can thank our, you know, politicians for getting in the middle of it all,” NPD Group analyst Marshal Cohen said. “This great unknown puts a big damper on the consumer feeling confident to go out and spend more.”
Some analysts also blamed the Newtown, Conn., school shootings just days before Christmas for dampening appetites for spending.
“The Newtown massacre, psychologically I think, spread through the country,” said Robin Lewis, a New York-based retail consultant. “This event was not isolated in the Northeast. It slammed the consumer with a lot of sobriety and made us think about what is happening in this world we live in, particularly around the holidays, when things are supposed to be wonderful and peaceful.”
Consumer sentiment plunged this month after hitting four-year highs in November. Analysts blamed growing public apprehension about the fiscal cliff and the partisan standoff in Washington.
“The fiscal debate anchored the season in terms of growth,” said Michael McNamara, a SpendingPulse vice president. “The media coverage, which did a good job of explaining the negative consequences of the fiscal cliff, created this negative trend in consumer confidence and spending.”
Federal Reserve Chairman Ben S. Bernanke and other economists warned that the acrimonious debate over the budget had the potential to kill growth not only next year, when the budget austerity measures are due to take effect, but also in the weeks leading up to the deadline because of the effect on public and business confidence.
Further damage could come during the week after Christmas, which is also a major time for shopping as many consumers go to malls and redeem gift cards. President Obama is returning to Washington Thursday from a Hawaii vacation to restart negotiations, but there is no accord in sight or signs of a breakthrough.
“Just when it looked as though President Barack Obama and House Speaker John Boehner were closing in on a deal before Congress recessed for the holidays, everything fell apart. Even as lawmakers return to Washington, it appears as though both sides are still trading punches and refusing to retreat to their corners of the ring,” said Standard & Poor’s Senior Director Peter Rigby.
Analysts say the ongoing debate is sure to deflate consumer moods.
“We are looking to Washington to come together in these crucial moments to avert going over the fiscal cliff,” National Retail Federation CEO Matt Shay said. The federation hasn’t revised its official forecast of 4.1 percent growth in sales this year.
“Consumers’ mixed confidence so far this holiday season has been evident, but we still believe we are on pace for decent growth overall,” Mr. Shay said.
A bright spot in the shopping season was in sales of electronics, particularly computer notebooks, iPads and big-screen televisions. Consumers were using their mobile devices more than ever to shop, analysts said. Online sales grew at double-digit rates of 16 percent or more this season, up substantially from last year, according to preliminary calculations.