Holidays a Tough Time to Reduce Debt

The inevitable collision between year-end spending and budget restrictions is making this an uncomfortable holiday season for two vital groups in the American economy: Consumers and the federal government.

American consumers, still wary of carrying debt — especially credit card debt — are spending at the lowest level in five years. Holiday sales were off by $1.8 billion after the Thanksgiving weekend, but jumped on Cyber Monday when online buyers spent $2.3 billion, a record for the digital shopping holiday.

The retail industry expects total holiday sales to reach $604 billion, or 2.4 percent more compared to 2012. That increase represents the smallest growth since 2009. Most major retailers are forecasting sales increases of 1 to 2 percent. JCPenney, which expects a 10 percent growth, is the only major retailer seeing a significant gain over last year.

The federal government, meanwhile, is wrestling with familiar spending problems of its own. Funding for the government runs out Jan. 15, and leaders from both parties are rushing to get something done before the U.S. House takes off for the Christmas holidays Friday.

Neither Republican nor Democratic leaders want to be held responsible for another government shutdown like the one that closed some federal offices in October, but there are significant obstacles to overcome to avoid a repeat.

“The Senate and the president continue to stand in the way of people’s priorities,” House Speaker John Boehner, R-Ohio, said in a speech on the House floor. “When will they learn to say ‘yes’ to common ground? When will they start listening to the American people?”

Slow Start for Holiday Spending

The season got off to a slow start over Thanksgiving weekend when shoppers did more browsing that buying. An estimated 141 million people were in stores, 2 million more than a year ago, but they spent $57.4 billion — down 3 percent in comparison.

Spending on electronics is the hot item, especially for adults with children. A Harris Interactive poll of shoppers indicates that more than 20 percent of adults with children under age 18 purchased smartphones, tablets or computers.

Buyers are reluctant to use credit cards for their holiday shopping. A survey by the National Retail Federation said 29 percent of shoppers are using credit cards. Forty-four percent said they would be using debit or check cards, and the rest are paying with cash.

Debt Rises Every Day in Washington

Just the opposite sentiment prevails in Washington, D.C., where Congress continues its tiresome approach to paying for anything. The federal deficit is up to 17.4 trillion and increasing every day. Republicans say they want to reduce the deficit by cutting spending. Democrats say they’ll agree to some cuts — as long as it includes tax increases.

The key budget issues still to be resolved before the Jan. 15 deadline include:

• Democrats want to extend long-term unemployment aid that expires on Dec. 28 for 1.3 million workers who’ve been jobless for longer than six months.
• Republicans are pushing a measure to prevent a 24 percent drop in Medicare payments to doctors. The cost is estimated at about $8 billion.
• Both sides are attempting to pass a Farm Bill, which sets priorities for food policy. It has existed for two years on a series of short-term extensions. If a bill is not approved, milk prices could double to more than $7 a gallon.
• The Food Stamp Program is part of the Farm Bill and the divide is huge there. Republicans want to cut funding by $40 billion over the next 10 years. Democrats want it reduced $4 billion over the next decade.

If the two sides can’t get things together fast enough, then Boehner says he will push to pass legislation that retains automatic spending cuts passed as part of the 2011 agreement. If nothing is resolved, sequestration goes into effect, automatically clipping $110 billion from the federal budget.