Recession Concerns Permeate Political Scene

Congress is developing several stimulus proposals to jump-start a faltering economy, as indicators point to a severe downturn and possible recession and...

WASHINGTON — Congress is developing several stimulus proposals to jump-start a faltering economy, as indicators point to a severe downturn and possible recession and consumers tighten their spending.

This story first appeared in the January 17, 2008 issue of WWD.  Subscribe Today.

The precarious state of the economy is also shaping the presidential race and candidates have rushed to address the problem with plans of their own.

House Speaker Nancy Pelosi (D., Calif.) said Wednesday that Democratic leaders will work with the Republican leadership and the Bush administration to craft a bipartisan package of economic incentives, possibly as early as next week.

“It has been clear for the past few weeks that in all sectors in the economic world, all shades of opinion in the economic world have said to us that a stimulus is needed to avoid a downturn or let [the economy] worsen,” Pelosi said at a press conference in the Capitol. “Our [goal] is to put forth a stimulus package that will be timely, will be temporary and will be targeted to middle- and lower-class families. We need to work in a bipartisan way to instill confidence in America’s consumers and to restore confidence in our markets.”

Pelosi revealed few details of the plan that she and other lawmakers are shaping, but she pointed to a report released by the Congressional Budget Office on Tuesday as a reference point for “some guidance” on successful initiatives.

The CBO, a nonpartisan agency that provides economic analysis to Congress, said several proposals supported by Democrats, including tax rebates, a temporary increase in food stamps and extended unemployment benefits, are cost-effective and boost the economy in the short term. The agency said tax rebates ranging from $300 to $600 given to taxpayers in 2001 were an effective way for Congress to ignite the economy, cautioning the rebates were most effective when given to middle- and lower-income families who are more likely to spend it.

The economy has also taken over the debates in early presidential primary states. Democratic candidates have all pledged to end the across-the-board tax cuts President Bush implemented in 2001 and 2003. Those tax cuts expire at the end of 2010.

The Republican candidates, with the exception of former Arkansas Gov. Mike Huckabee, who is promising a national sales tax and elimination of income taxes, have said they would make the tax cuts permanent.

The weak showing of consumer spending, which makes up two-thirds of the economy, has stoked fears among merchants. The National Retail Federation’s board adopted a resolution on Tuesday calling on Congress and President Bush to quickly enact a plan that “would put cash back in consumers’ pockets.”

The mass merchant-oriented Retail Industry Leaders Association also supports a stimulus package.

Katherine Lugar, senior vice president of government affairs for RILA, said, “There is no question putting money back in the hands of consumers is both beneficial to the retail industry, but more importantly, to the overall economy.”

Economists were divided over whether a stimulus package will stave off a recession.

Rajeev Dhawan, director of the economic forecasting unit at Georgia State University, said tax rebates might help in the short term, if enacted quickly, but would not help in the long run.

“At this point, Congress needs to think more about homeowners and how they can help them, rather than doing an overall tax cut or rebate,” Dhawan said. “The root of the problem is that people cannot refinance their subprime mortgages and tax rebates will not help that.”

Brian Bethune, a U.S. economist for Global Insight, said tax rebates are the right answer for the economy, if delivered in a timely manner without conditions and coupled with further interest rate cuts. Bethune said Democrats will run into trouble by proposing “targeted” tax refunds and should focus instead on across-the-board refunds.

On Wall Street, retail shares rallied after the Federal Reserve said there was economic growth at the end of 2007.

The S&P Retail Index was up 2.5 percent to close at 374.05, one of the first times the index has closed up since the start of trading in 2008. The Dow Jones Industrial Average fell 0.3 percent to 12,465.51, while the broader S&P 500 was down 0.6 percent to 1,373.04.

Christopher & Banks Corp. rebounded 13.9 percent to $9.73, after being downgraded by Northland Securities on Tuesday. Department stores also had a big comeback. Sears Holding Corp. rose 4.9 percent to $90.25, while Macy’s Inc. increased 3.9 percent to $22.49. J.C. Penney Co. Inc. recovered 6.5 percent to close at $39.22 and Gottschalks Inc. grew 7.2 percent to $2.39. Stein Mart Inc. was one of the biggest advancers, soaring 12.3 percent to $4.28. High-end department store Saks Inc. jumped 6.2 percent to $16.02.

But a Reuters/Zogby poll showed consumers fear a recession more than ever. The index, which measures the mood of the country, fell from 97.3 to 94.2, its lowest since the survey started in July. A score above 100 indicates the public mood has improved since July, while a score below shows the mood has worsened. Concerns about the slowdown in the housing market and increasing food and energy prices caused 43.4 percent of voters to say they expect a recession, up from 40 percent last month.