Holiday shopping is expected to be up ... unless

[October 04, 2013]  NEW YORK (AP) -- Americans, who're increasingly optimistic about improving economic conditions, are expected to spend at a more rapid clip during the upcoming holiday shopping season than they did last year.

But that could change if the partial government shutdown that has forced about 800,000 federal workers off the job continues and causes shoppers to lose confidence in the economy.

The National Retail Federation, the nation's largest retail trade group, on Thursday forecast that sales in November and December will rise 3.9 percent to $602.1 billion. That's above the 3.5 percent increase a year ago and the 10-year average in holiday sales growth of 3.3 percent.

But Matthew Shay, the group's president and CEO, said in an interview with The Associated Press on Wednesday that the forecast was calculated before the government shut down after Congress failed to pass a spending bill by Monday's midnight deadline. In addition to the furlough of hundreds of thousands of workers, that resulted in the shuttering of national parks and halting of a range of government services.

Shay said the group's forecast does not account for the possibility that the shutdown, now in its third day, could go on for a prolonged period of time that he defines as two weeks or more. But it does factor in the optimism Americans feel as jobs have become easier to get and the housing recovery has gained momentum.

"What we are trying to balance here is the underlying fundamentals with the economy, which seem strong, against all that consumer unease and the uncertainty coming from Washington," Shay said.

Shay acknowledges that predicting how the holiday season will fare is difficult. In fact, the National Retail Federation has often been either too cautious or too optimistic. Last year, for instance, the group's forecast of 4.1 percent increase was far higher than the 3.5 percent rise retailers actually saw.

But the forecast nonetheless is an important indicator for retailers that rely on the last two months of the year for 20 percent to 40 percent of their annual sales. The estimates also provide insight for economists into consumer spending, which accounts for up to 70 percent of economic activity.

A big concern is that a prolonged government shutdown could severely hurt the economy and necessarily, consumer spending. For each week the government remains shut, the U.S. economy would lose 0.15 percent of annualized growth, estimates David Stockton, a former research director at the Federal Reserve who is now at the Peterson Institute.

And even before the government shutdown, retailers had reasons to be cautiously optimistic. While the job and housing markets are improving, that hasn't yet translated into sustained spending increases among most shoppers. Meanwhile, Wal-Mart Stores Inc. and other low-priced chains say that customers continue to struggle with a 2 percentage-point increase in the Social Security payroll tax that started on Jan. 1.

Those worries hurt stores' sales during the back-to-school shopping season, the second largest shopping period behind the winter holidays. And a slew of retailers lowered their expectations for the rest of the year.

An extended government shutdown would only further threaten holiday sales, but it wouldn't be the first time the government's actions have had that impact. Last year, many Americans were worried about tense negotiations to resolve the fiscal cliff, a simultaneous increase in tax rates and a decrease in government spending. Congress and the White House reached a deal on Jan. 1 that prevented income taxes from rising for most households, but many store executives blamed the uncertainty during the height of holiday shopping for a slowdown in sales in late December.

Unlike that battle last year, Shay, with the National Retail Federation, said he expects the government shutdown to be over well before the official kickoff to the holiday period on the day after Thanksgiving.

"We are optimistic that it could get resolved," he said. "But we still have to be realistic."

[Associated Press; By ANNE D'INNOCENZIO]

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