Neither Sandy nor ‘cliff’ will steal Christmas from shoppers

U.S. consumers are in an upbeat mood and are preparing to spend more this holiday season than last year’s, providing a badly needed boost to the economy. But headwinds from the lingering effects of Superstorm Sandy and the year-end political storm brewing in Washington could put a damper on their shopping spree, analysts say.

With Thanksgiving sounding the starting gun for the national holiday shopping rush, consumer optimism has been building since the summer and recently crescendoed in surveys showing consumer sentiment near a five-year high. The International Council of Shopping Centers found about a quarter of consumers are planning to increase spending through the end of the year — the best showing in its holiday survey since 2004.

The bullish outlook has prompted analysts to forecast a healthy gain of 4 percent to 5 percent in sales during the all-important Christmas shopping season, when about a quarter of all retail sales are made in the U.S.

The National Retail Federation’s prediction of a 4.1 percent gain would make 2012 the best season since 2007 and result in a record $586 billion in sales. But that all depends on consumers ignoring the gathering clouds that threaten to rain on their parade.

“Surveys for the current year point to a solid holiday shopping season,” said Harm Bandholz, an economist at Unicredit Research, noting that the retail federation’s prediction of 4.1 percent gains could prove conservative, given the recent jump in consumer optimism and underlying growth of 5.5 percent in retail sales so far this year.

Mr. Bandholz acknowledges the possibility of interruptions, but said he doesn’t think a political fiasco in Washington will end up ruining the Christmas shopping season.

“Certainly, there are two developments which could negatively impact the holiday season: Hurricane Sandy and the looming fiscal cliff,” he said. But he said he thinks consumers are steadfastly focused on the brightening outlook for jobs and the overall economy. Retailers, who are the largest employers in the U.S., in particular have been on a hiring binge as they staff up for year-end sales.

Mr. Bandholz noted that consumer sentiment was not affected much by last month’s superstorm, though it hit the most densely populated and wealthiest region in the country and had an outsized impact on industrial production, car sales and retail sales last month. Because of the storm, retail sales declined 0.3 percent in October as consumers in the Northeast stayed away from the stores. But economists expect sales to bounce back in November and December as consumers ratchet up for the holidays and make repairs after the storm.

Beyond the storm, consumer confidence and sales until recently have appeared to shake off fears of the looming confrontation between the White House and congressional Republicans that could result in $500 billion in spending cuts and expiring tax cuts scheduled to start taking effect at the end of the year. That leads Mr. Bandholz to be optimistic that the political drama will have little effect on Christmas sales.

“Let’s hope that policymakers do not ruin the party” as the nation gets closer to the holidays, he said.

Optimism at the mall

David Hargreaves, chief operating officer at Hasbro Inc., the leading toymaker, was one of many business leaders who say signs point to healthy Christmas sales.

“Certainly consumer demand has held up pretty well” in recent months, and customers seem “cautiously optimistic” about the future, he said.

The better outlook for sales has prompted retailers to start hiring early, and seasonal employment looks set to surge this year. The job-search site Indeed.com reported that retail job postings rose by 6 percent last month, the largest increase of any industry it has seen. Hiring has been especially robust at Apple Inc., The Walt Disney Co., Coach Inc., Costco Wholesale Corp., Inter Ikea Systems B.V. and Dressbarn stores, it said.

If consumers have their way, it will be a good holiday season, said Chris G. Christopher, economist at IHS Global Insight.

“Recent news on the consumer front has been favorable,” he said. “Many retailers have already started hard and deep price-discounting, and a significant number of chain stores are planning on opening their doors on Thanksgiving Day,” giving consumers more time to shop before Christmas.

But several “caveats” have prompted IHS to lower its projection for holiday sales growth to 3.9 percent from 4.5 percent, including lingering effects from the superstorm and the possibility that consumers could get rattled by another round of congressional grandstanding and discord in December.

“It is obvious that Hurricane Sandy has blown the retail sales momentum off course,” Mr. Christopher said.

A dip in consumer sentiment from a five-year high after the election suggests consumers are starting to focus more on the fight over the fiscal cliff, which has the potential to crimp their buying power, he said. Any failure by Congress to resolve differences over expiring tax cuts, for example, could result in significant tax increases in January for everyone who pays income and payroll taxes.

“If there is significant political bickering and finger-pointing over fiscal cliff issues, consumer confidence and holiday spending may take a hit,” Mr. Christopher said.

Still buying

So far, consumers have paid little heed to the political clash.

“Consumers appear to be in better spirits than last year,” with households planning to spend an average of $521 on gifts this season, said Lynn Franco, an economist at the Conference Board. As was seen during the recession, consumers will continue looking for deep discounts and bargains, and many will buy their gifts online to get the best deals, she said.

With consumers able to buy at any hour of the day online, bricks-and-mortar retailers in recent years have responded by launching the shopping season increasingly early with hard-to-resist bargains — like Wal-Mart Stores Inc.’s offer of $399 Apple iPad 2s with a $75 Wal-Mart gift card to anyone who lines up at its stores between 10 p.m. and 11 p.m. on Thanksgiving Day.

“Retailers are under immense pressure to get the holiday shopping season off to a strong start. It is the busiest time of the year for them and ’Black Friday’ is so named because it is the day when most retailers’ sales move ’into the black’ for the year,” said John Challenger, chief executive of Challenger, Gray & Christmas Inc., a Chicago outplacement firm. With the stakes so high, “they are all compelled to find whatever edge they can to get shoppers into their stores.”

The advent of sales on Thanksgiving has left some employees disgruntled and turned off some consumers who say the holiday should be spent with families, not shopping. But it has led to earlier hiring by retailers and more plentiful jobs, he said. Challenger is predicting seasonal hiring of more than 660,200 workers this year, and already in September and October, stores announced openings that amount to two-thirds of that total.

“From a job-seekers’ perspective, the earlier openings are a good thing,” Mr. Challenger said. Though “as the newest additions to the staff, these seasonal workers should be prepared for the fact that they will be the most likely employees to work on Thanksgiving.”