Washington’s budget gridlock is unsettling consumers and businesses, raising the risks that economic growth would be hurt next year no matter what Congress does in the coming days.
(…) Three other potential paths are coming into focus as lawmakers consider their options.
• A partial agreement that defers several key decisions. Lawmakers could agree in coming days to maintain the Bush income-tax rates for all but the highest-income earners. (…) That would leave unresolved several major components of the cliff, including the spending cuts, a scheduled increase in the payroll-tax rate and the need to prevent the alternative minimum tax, known as the AMT, from hitting an additional 30 million households for the 2012 tax year. These elements, if not addressed later, could cause the economy to stall early next year.
• A January agreement. Lawmakers could stretch their discussions into early next month, revisiting the issues after tax rates have increased. Then they could vote to lower tax rates for some households and address the spending cuts and other components, such as the AMT and jobless benefits.
Under this approach, lawmakers could try to avoid unsettling investors and consumers by signaling their intentions. The economy would take a hit from the expiration of the payroll-tax cut and some other tax breaks. But it could emerge with bruises instead of heavy bleeding.
• No agreement soon. If the battle continues beyond early January, the odds of a new recession rise dramatically. (…)
One additional wild card in every scenario is the federal debt ceiling, which will need to be increased from its current level of about $16.4 trillion by early March. If it isn’t included in any cliff deal, the White House and Congress would begin that fight within weeks as financial markets watch nervously. (…)
Early Data Show Weak Holiday Sales The holiday shopping season drew to a muted close for many retailers, according to preliminary data, reflecting what some experts said was the slowest growth in spending since 2008.
For the eight weeks from Oct. 28 through Christmas Eve, retail sales for the holidays rose just 0.7% from the year before, according to MasterCard Inc.’s SpendingPulse unit. (…) Online sales for the holiday rose to $48 billion, an 8.4% increase from 2011, according to SpendingPulse.
Retail consulting firm Customer Growth Partners said 2012 looks like the worst holiday-shopping season since 2009. Sales rose roughly 2.8%, after a 5.8% jump in 2011, according to its president, Craig Johnson. (…)
During the final shopping weekend before Christmas, retailers including Saks Inc. and Gap Inc.’s Gap and Old Navy chains offered discounts of 40% to 70% throughout their stores.
Wal-Mart Stores Inc. cut toy prices by 11% over the past two weeks, outpacing Target Corp.’s 2% toy discount, according to Deborah Weinswig, an analyst at Citigroup.
Weekly chain store sales rose 0.7% during the week ended Dec. 22. The 4-week m.a. is up 3.1% Y/Y.
Port Closures Approach, As America Nears The Container Cliff It might not be as economically deadly as the tax hikes and spending cuts due on Jan. 1, but a looming crisis at America’s ports has retailers worried.
A coast-wide port shutdown would have a significant impact across all businesses and industries that rely on the ports, particularly retail.
Data through October 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices showed home prices rose
4.3% in the 12 months ending in October in the 20-City Composite, out-distancing analysts’ forecasts. The 10- and 20-City Composites recorded respective annual returns of +3.4% and +4.3% in October 2012 –
larger than the +2.1% and +3.0% annual rates posted for September 2012. In nineteen of the 20 cities, annual returns in October were higher than September. Chicago and New York were the only two cities with negative annual returns in October. Phoenix home prices rose for the 13th month in a row. San Diego was second best with nine consecutive monthly gains. (…)
“Looking over this report, and considering other data on housing starts and sales, it is clear that the housing recovery is gathering strength. Higher year-over-year price gains plus strong performances in the southwest and California, regions that suffered during the housing bust, confirm that housing is now contributing to the economy. Last week’s final revision to third quarter GDP growth showed that housing represented 10% of the growth while accounting for less than 3% of GDP.