Viewpoint: Fiscal cliff could curb US clothing sales
The heads of two US trade groups representing apparel and footwear retailers, brands and importers have warned of a slowdown in consumer spending unless lawmakers can reach an agreement to avoid the so-called "fiscal cliff" which is looming at the end of the year.
A combination of tax increases and across-the-board spending cuts are set to take effect from the beginning of January unless the president and Congress can agree on a new deficit-reduction plan.
Speaking at the World Retail Congress in London last month, Matthew Shay, president and CEO of the National Retail Federation (NRF), described the fiscal cliff as a "Sword of Damocles" hanging over US retailers' heads as they come into the holiday season.
"We've got expiring tax cuts, increased taxes due to the health care law, the debt ceiling is going to expire," and there are "a number" of other costs relating to President Obama's new health care laws, said Shay, "all of which are going to happen at, or about, the same time."
If steps are not taken to avoid the situation, he warned of a contraction in the US economy, and estimates as much as 4-5% could be lost from the country's GDP. Taxes could rise by US$400-500bn in 2013 alone, with upwards of US$100bn in automatic budget cuts known as sequestration, as well as cutbacks in defence spending and other areas.
Meanwhile, Kevin Burke, president and CEO of the American Apparel and Footwear Association (AAFA), told delegates at last week's International Apparel Federation (IAF) World Apparel Convention in Portugal that the US economy will "drop like a rock" when the fiscal cliff kicks in.
At best he sees curtailed economic growth, while the worst-case scenario would be to push the US back into a recession.
"In January, watch employment and the economy drop," he said, adding: "And when people fear they'll be out of work they'll buy less of our product. Our industry relies on people buying new clothes all the time."
Worries about political and fiscal uncertainties are already weighing on US shoppers ahead of the all-important holiday season, according to an NRF forecast released earlier this week.
It points to a 4.1% rise in retail sales to $586.1bn in November and December, although this is slower than the 5.6% rise in holiday sales seen last year.
"Variables including an upcoming presidential election, confusion surrounding the 'fiscal cliff' and concern relating to future economic growth could all combine to affect consumers' spending plans, but overall we are optimistic that retailers promotions will hit the right chord with holiday shoppers," Shay notes.
With additional reporting by Petah Marian.
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