The call is fairly simple — get America back to work and get consumers spending again. The path to get there is more complicated.
This story first appeared in the September 12, 2011 issue of WWD. Subscribe Today.
For retailers and fashion industry executives, the keys to jump-starting the economy range from tax cuts to a reform of burdensome government regulations to advancing the free trade agenda.
“We’re in uncharted territory right now on this issue,” of what the government can do to stimulate the economy and the job market, said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association. “The President proposed tax breaks for people that have been out of work for a long time, which generally involves smaller businesses and not necessarily the folks that we represent. But in the long haul, if you start pumping money back into the economy, if you’re putting construction workers back to work or small-business people back to work, and they have money back in their pockets, then they will have the ability to buy the things we produce, whether it’s made here or in China.”
At the heart of the President’s $447 billion American Jobs Act, aimed at reducing the nation’s 9.1 percent unemployment rate and reviving the stagnant economy, is a proposal that would provide a one-year extension of payroll tax cuts for workers that took effect this year, giving a family earning $50,000 a year a tax cut of $1,500. On the business front, Obama proposed several tax cuts, including a tax break of up to $4,000 for employers who hire workers unemployed for over six months, a payroll tax cut for employers on the first $5 million in wages, a reduction to 3.1 percent from the 6.2 percent payroll tax that firms now pay for any growth in payroll up to $50 million above the prior year, and a tax break that will allow companies to immediately deduct the full value of new equipment and plants into 2012.
Obama’s plan also calls for a one-year extension of expiring unemployment insurance.
Burke said historically one of the first things that stops selling in a recession is clothing and footwear, which he noted was seen in 2008.
“If Congress and the administration are able to develop an economic model that gets more money back in the marketplace for people to be employed, then we have less worries on our end about being able to sell product,” he said. “Right now we’re seeing Americans save more then they’ve ever saved,” even though interest rates are at record lows. “People are afraid to buy things. The other thing is that there are lots of large companies out there sitting on a ton of cash, and they’re afraid to use it to employ people.”
Retailers are also cutting back on inventories, as evidenced by drop-offs in imports the last few months, because they don’t want to get stuck with high inventories. He said the reverse could actually happen, and stores could be understocked if consumer spending rebounds.
Burke noted another action that could benefit the economy and the apparel industry with increased exports and therefore more jobs — for Congress to pass and the President to sign the pending free trade agreements with Colombia, Panama and South Korea. He blamed the Obama administration for not sending it to Congress for approval, which experts said has not happened because Obama and the Democrats want the passage of the pacts linked to renewal of Trade Adjustment Assistance, which offers special benefits for people who have lost their jobs due to unfair import competition.
“There are people from both parties who don’t believe we should be paying for trade adjustment assistance for people who have been negatively affected by free trade,” he said. “Eventually these trade agreements will have to be passed because our country is being overflown by other countries who have agreements with Colombia, Panama and South Korea to our disadvantage. If [Obama] is going to talk free trade, you’ve got to walk the walk. If he’s true to his word from his speech, maybe we’ll see some action. I would be pleasantly surprised if I see it happen.”
Burke and many others agreed that partisan politics could get in the way of any proposals, but there were some early signals from Republican leaders of a willingness to compromise or at least act on areas of common ground.
On Thursday, the AAFA submitted a strategy for White House consideration that it said will create and sustain well-paying jobs within the U.S. apparel and footwear industry. This strategy includes reforming the government procurement process, opening markets to meet evolving business challenges and reducing regulatory burdens that hinder innovation.
AAFA would like the U.S. military, which spends more than $2 billion a year on uniforms, camouflage gear and combat footwear for U.S. servicemen and women, to purchase less from the government-run Federal Prison Industries, which manufactures goods made by federal inmates, and more from private industry. Under the Berry Amendment, all apparel and footwear worn by troops must be made in the U.S.
In the area of trade, in addition to passing the trio of pending trade pacts, the AAFA is calling for the successful conclusion to the Trans-Pacific Partnership negotiations, which would create a broad regional free trade group among nine countries, and the Save Our Industries Act, meant to expand trade in textiles and apparel between the U.S. and the Philippines.
“The President has put together a package of initiatives that will help put Americans back to work,” said Matthew Shay, president and ceo of the National Retail Federation.
Shay said the proposal to reduce payroll taxes for consumers will help spur spending, while the call to reduce employers’ payroll taxes would have a more direct impact on job creation. He said spending on transportation infrastructure would also create jobs and give more spending power to consumers, while eliminating “bottlenecks that slow delivery of merchandise to retail stores and drive up prices.”
The NRF has made a several additional job-creation recommendations to the government, including lowering the corporate tax rate; enactment of the Main Street Fairness Act that would authorize at least 24 states to require all Internet retailers to collect tax on online sales, helping to preserve local jobs, and repeal of the employer mandate in the sweeping health care overhaul passed last year, which the NRF said will force many employers to cut their workforces.
Brendan Hoffman, ceo of Lord & Taylor, said, “Instability in the stock market and high unemployment is disturbing to people. Wild swings in the markets make people pause. But quite honestly, our business has been good. I think people are shopping. Do I think they would spend even more if there weren’t these wild swings? Sure…Creating more jobs would go a long way” to improving retailing.
Sarah Pierce, senior vice president of the National Council of Textile Organizations, said the government needs to free up financing for exports through the Export-Import Bank and crack down on customs textile fraud, which could help stimulate business and create jobs in the U.S. textile industry.
“We’ve been working for five years to get the Ex-Im Bank to offer better financing for the industry,” said Pierce. “The bank has up until now failed to recognize what the true global supply chain looks like, and that where our members are having problems is getting financing and insurance to export to the CAFTA [Central American Free Trade Agreement] and NAFTA [North American Free Trade Agreement] markets and preference program markets.”
The industry is supporting legislation currently making its way through Congress that would reauthorize the Ex-Im Bank, add a textile industry representative to the bank’s advisory committee and ask the bank to do a review of its financing services.
Jim Chesnutt, president and ceo at National Spinning Co., said the government needs to roll back what he sees as punitive regulations and make more credit available to small businesses.
“Our small customers’ financing has dried up because bank regulators won’t let banks make loans unless they have a pot of gold to secure it,” he said.
John Lonski, chief economist at Moody’s Capital Markets Group, said the President’s proposed extension of payroll tax cuts will “probably do more to shore up consumer spending as opposed to triggering a significantly faster rate of growth for consumer spending.”
Lonski said one action the government could take to help small businesses and financial institutions and spark job creation is easing regulatory burdens.
“The regulatory environment is costly and burdensome for small businesses,” he said. “Perhaps they should be exempt from some regulations that larger corporations are subject to.”
John Tulin, chairman and chief executive officer of Swank Inc., a men’s accessories supplier, said, “People concerned about their next mortgage payment and job security aren’t going to spend a lot on belts and wallets. It all starts with jobs and housing.”
Tulin noted that numerous government initiatives and much of the political rhetoric has centered on either large companies or mom-and-pop businesses.
“GE may be parking its money in various places and paying no taxes, but we’re not GE and we’re paying at a 40 percent rate,” he said. “If someone came to us and said we could get a tax credit for new hires if we employ them for at least two years, that might have an impact. But for a company like ours, it would probably be a matter of hiring five people, not 500. Still, anything you can do to lessen the burden on middle-sized companies is helpful.”
Tulin acknowledged that he was skeptical that previous rounds of stimulus spending had been put to good use and expressed doubt that infrastructure spending, if enacted, could have a material effect on economic conditions in the near term. Yet, he said he believes that “government has to play an active role in getting people through a very difficult crisis that they didn’t create.”