Holiday season poses major test for Biden economy
Black Friday this week will kick off a crucial stretch for President Biden as the U.S. economy struggles to shake off the limits of the coronavirus pandemic.
COVID-19 stifled the regular economic boost of the holiday season in 2020, but retailers and manufacturers are bracing for a surge of shopping and travel after three straight months of growing pressure on supply lines.
Retail sales minus automobiles and gasoline during Thanksgiving week are expected to rise 10 percent from last year and 12.2 percent from 2019, according to data from Mastercard. The credit card company is projecting a 56 percent increase in apparel sales, a 40.2 percent jump in department stores sales, roughly 30 percent more spending on electronics and a nearly 40 percent increase in jewelry sales from the same time last year.
“Holiday lights are shining bright for retailers this year,” said Steve Sadove, senior adviser for Mastercard and former CEO and chairman of Saks Incorporated. Sadove added that the ongoing backlog of popular goods will make Black Friday deals far less generous than before the pandemic.
“The consumer is strong and spending. With discounts in short supply, product innovation, availability and sustainability will be deciding factors for consumers eager to cross off their holiday shopping lists,” he said.
Mastercard also expects online retail spending to jump 7.1 percent from last year and a staggering 50.2 percent from Thanksgiving week 2019, a major test for already overloaded shipping companies.
The political stakes are high for Biden, with Republicans more than ready to accuse him of ruining the holidays. While many other nations are struggling with high inflation and with much higher unemployment than the U.S., high prices have harmed Biden’s approval with less than a year before the midterm elections.
The holiday shopping rush is also a key driver of growth. Roughly two-thirds of U.S. gross domestic product comes from consumer spending, and some economists have warned that a supply-constrained retail sector could sting.
Economists at Goldman Sachs expect holiday sales to fall by 0.5 to 1.8 percent this year when adjusted for inflation because of supply bottlenecks, which they said could reduce the fourth quarter growth rate by up to 1 percentage point.
“Foreign production of non-chip-intensive consumer goods has ramped up, and our nowcast suggests sufficient supply to meet holiday demand without further inventory drawdowns. But with shipping times on the rise and concerns about port congestion and trucking shortages, will these products arrive in time?” wrote Goldman economist Spencer Hill.
The White House has touted data to soothe those concerns, mentioning that Walmart, Target, BestBuy and TJ Maxx are fully stocked. It shared data this week on transportation supply chain progress, including that, as of Nov. 15, 87,000 long-dwelling containers were waiting at the ports of Los Angeles and Long Beach, down 32 percent from Nov. 1.
Also, 849,000 imports arrived at those ports for October, which is 16 percent higher than a previous peak in 2018. U.S. retail inventories were at $456 billion at the end of September, up 4 percent from the same time last year.
“Americans should feel good about the progress that’s being made in addressing these disruptions and also ensuring that shelves are stocked at these big retail stores around the country,” White House press secretary Jen Psaki said on Thursday.
Retailers have struggled for months to rebuild inventories as consumer demand recovered from the pandemic far quicker than factories and shipping companies could handle. The emergence of the delta variant in late July also shifted more demand away from services and toward goods as ports and factories faced new shutdowns.
The result: shortages, shipping delays and higher prices driven by a complex mix of global problems, said Scott Paul, president and CEO of the Alliance for American Manufacturing.
“There’s lots of different variables,” Paul said. “Is shipping a constraint? Are the materials a constraint? Or is it just that people want stuff faster than it’s possible given every resource to make it happen?”
Paul said that while not all shoppers will find exactly what they want on time, especially if they’re looking for cars or trucks, “things are getting better day by day, and week by week, so I think that the hype is going to be greater than the effect.”
“There are many cases where I think both manufacturers and retailers are trying to make the best of this, and I have to imagine that there’ll be far less consumer disappointment than one may anticipate,” he continued.
The business group for major retailers, the Retail Industry Leaders Association (RILA), expressed optimism going into the holiday shopping season.
“Supply chain disruptions and talent shortages are problematic, but if any muscle has been flexed over the past two years, it’s that of resiliency. Leading retailers are working around the clock to ensure they meet customer demands this holiday season and fully expect to deliver for their customers,” said Michael Hanson, RILA senior executive vice president of public affairs.
Hanson said the Biden administration could do more to ease the supply chain congestion, such as addressing the dislocation of containers for return and committing to data infrastructure standards for visibility and plannability at ports.
Republicans have argued that Biden has in particular worsened the worker shortage with his vaccine-or-test mandate for companies with 100 employees or more, which has a Jan. 4 deadline for businesses to comply but is facing legal challenges.
More than 40 GOP senators earlier this month formally moved to disapprove of and nullify Biden’s mandate.
“Amidst a labor shortage, a supply chain crisis, and on the brink of the holiday season, President Biden should be working to help private businesses rebound from the pandemic. Instead, he’s trying to force government into what should be a personal health decision between individuals and their doctors,” Sen. Cynthia Lummis (R-Wyo.) said at the time.
About 700,000 extra workers will be needed in the retail industry this holiday season due to the typical need for additional workers and the current staff shortage in retail, according to projections from the National Retail Federation (NRF).
“It is certainly real,” said David French, senior vice president of government relations at NRF, when asked about the worker shortage.
“All of our members are reporting challenges in hiring, some of the larger members have accelerated pay increases and bonuses. It’s a challenge,” he said, adding that human resources departments have to build out the systems to comply with the mandate while also handling hiring people.
The White House has argued that the vast majority of companies are not concerned they will have trouble retaining workers due to the mandate, maintaining that it will mean more certainty for companies and make people feel safe going into work.
The Occupational Safety and Health Administration said it would suspend enforcement of the mandate for businesses after a federal appeals court reaffirmed its decision to suspend the mandate. But the White House is still urging large businesses to move forward with it.
“Our message to businesses right now is to move forward with measures that will make their workplaces safer and protect their workforces from COVID-19,” Psaki said this week.