In an open letter to congressional leaders, National Retail Federation (NRF) president & CEO Matthew Shay made a persuasive case that without an immediate end to the government impasse the American economy is facing disaster with or without a technical debt default. According to the NRF the recurring nature of the debt ceiling debates have created repeated headwinds for his industry over the last several years, suggesting a temporary bargain is of limited value.
The problem is reaching an apex at the worst possible moment for retailers. Traditionally the holiday season accounts for the bulk of a retailers' profits. In fact, Black Friday earned the name because most merchants would be in the red (losing money all year) if not for the month between Thanksgiving and Christmas.
Just when retailers are supposed to be stocking up on temporary employees and buying last minute goods, the shutdown is forcing them to fly blind. The shutdown "knocks the supply chain off and the hiring process off," notes Yahoo Finance senior columnist Mike Santoli in the attached video.
Goods are gummed up on the docks, employees legal residency can't be verified. "Economically we're at a point where the consumer is at stall speed and in a bad mood anyway and obviously, seasonally, it's about the worst possible time (for a shutdown)," says Santoli.
There's little question the consumer is being impacted by the shutdown. According to data released by Gallup the drop in consumer confidence for the week ending October 6th was the largest seen since the week following the collapse in Lehman Brothers in 2008. In fact, since Gallup started its consumer confidence poll in January of 2008, two of the ten most severe drops occurred in 2013, with the other coming in February as a result of sequestration. July 2011 also saw dramatic pullbacks as a direct result of yet another debt ceiling debate.
Not coincidentally Gallup reported that consumer spending in September dropped to the lowest level seen since February.
It's easy for cynics to suggest U.S. consumers tightening their belts is for the best but they're missing the point entirely. The government shutdown isn't just ruining some vacations and hitting furloughed employees. More than 1/4 of the U.S. economy is at stake. Everyday the shutdown continues thousands of people on the bleeding edge of the economy lose their livelihoods.
Here's a sampling of some the factors the NRF says are being ignored regarding the costs of the shutdown:
42 Million Americans work in retailing and retail-related careers
According to the Bureau of Labor Statistics' latest data (which has been delayed by a month) that works out to roughly 1/4 of the civilian labor force. By comparison the government employs 2 million people; 800,000 of whom were deemed "non-essential" and furloughed. The U.S. has more than 3.6 million retailers contributing $2.5 trillion to GDP.
Retailers are in the process of hiring 700,000 seasonal workers
With the eVerify system for determining immigration status down merchants have no way of determining whether or not these potential new hires are U.S. Citizens. Again according to BLS data these non-management retail workers make an average of $14 an hour and put in 30-hours a week. Call it $3 billion of potentially grey market wages, $600 million more than Customs and Border Protection spent building 670 miles of border fence between 2006 and 2009.
Without monthly sales data retailers are flying blind
National retail sales data won't be released tomorrow. This month is the last chance for merchants to order holiday goods without having to expedite delivery. Flying blind, other than knowing for certain that consumer confidence is plummeting, it's safe to say orders for merchandise will be conservative.
Exacerbating matters, the NRF points out U.S. Customers and Border Protection remains open but there are more than 40 government agencies responsible for clearing cargo that remain furloughed. Inspected cargo has no value if it can't be shipped.
Merchants account for 11.2% of annual business bankruptcies in the U.S. annually. Only 47% of all start-up retailers are viable four years after opening. The holiday quarter accounts for as much as 40% of revenues and nearly half of all profits for companies selling discretionary consumer goods.
Every day the government is closed millions of dollars and thousands of jobs are lost. The stakes are much, much higher than the government would have you believe. If the U.S. isn't open for business by November 1st the government will likely avoid default somehow, but the problems for the total economy will linger well into 2014.