NEW YORK — The apparel industry might benefit more from the free-trade policies of President George W. Bush, though Sen. John Kerry’s proposed tax cuts could boost spending of the middle class, according to some industry experts.

With the race for the White House less than four months away, industry executives are concerned that protectionist measures under a Democratic White House to keep jobs in the U.S., especially those in the manufacturing sector, might result in higher prices for goods in the stores.

“For retailing, we’re better off with the current situation,” said Richard Hastings, retail analyst with Bernard Sands. For Hastings, the Democrats’ plan to protect American jobs, while admirable in theory, may negatively impact consumer spending.

Revitalizing the manufacturing sector is one goal of the Democratic platform. According to Kerry’s official election Web site, johnkerry.com, more than 2.7 million manufacturing jobs have disappeared since Bush took office. It’s a trend Democrats are looking to reverse by offering tax incentives to keep manufacturing in the U.S.

“Any kind of increase in regulatory oversight and any attempt to protect American jobs will increase costs and lead to an increase in prices at retail,” Hastings said. “In turn, that would lead to a decrease in consumer spending.”

Hastings conceded that the Kerry model could increase domestic employment levels, “but one has to be concerned that those jobs are not going to be at the same wages as the foreign producers.” Furthermore, he pointed out, attempting to reverse the globalization of production will prove difficult.

Another issue addressed in the Kerry economic platform is the stimulation of middle-class spending power through tax cuts.

“Obviously, if you provide more disposable dollars to the middle class, they’re going to spend,” said Stanley Officina, president of Sterling Factors. “I don’t think there’s any way of gauging the dollar amounts involved. If it’s a $200 check across the country, I don’t know how meaningful that’s going to be.”

The burden of bringing about change, however, may very well remain with the Democrats. “I don’t see the Bush administration as having a second phase to the package that they unrolled in the last four years. There’s really nothing new they could add to the story,” said Hastings.

This story first appeared in the July 19, 2004 issue of WWD. Subscribe Today.

Heading into the convention season, there are indications that the economy’s health has improved significantly. Data from the President’s official reelection Web site, georgewbush.com, heralds a 5 percent growth in gross domestic product over the past three quarters. According to the Bush camp, it’s the “fastest rate of growth in nearly two decades.”

A study commissioned by the National Retail Federation and carried out by Wells & Associates, however, found historical precedent for this kind of election-year spike.

Examining GDP levels for the periods before, during and after election years going as far back as 1942, the Wells study found that the economy performed at its best during election years.

“The real GDP growth in an election year averaged 4.6 percent,” said the report. “Quite by coincidence, that is the identical growth that we are forecasting for real GDP this year.”

The reason is directly tied to the election, said Rosalind Wells of Wells & Associates.

“The administration tries to pump up the economy in anticipation of the election, to make the economy look stronger, which brings out the vote for them,” Wells explained.

In the case of President Bush, this bump up can be traced to last year’s tax cuts. “That’s a great deal of stimulus in the system,” Wells said.

According to the report, the average yearly increase in real GDP since 1942 is 3.1 percent. During the two years preceding an election, growth trails that average, coming in at 2.4 percent. And in the year preceding an election, the GDP growth average is 3.9 percent. That growth rate then retreats to 3 percent in the year after an election.

Apparel sales have benefitted from the rising tide of an election-year economy as well.

“In the first five months of 2004, sales at clothing and clothing accessory stores increased 10.9 percent above the previous year,” said the report.

Many of those who follow and work in the industry, however, believe fashion retailing will continue to be challenged by macroeconomic pressures regardless of who wins the election.

Kurt Barnard, president of Barnard’s Retail Consulting Group, believes any shift in consumer spending may depend on which candidate is leading the polls heading into October.

“Because of the way the Democrats are trying to embrace the middle class, [the middle class] could feel a little empowered and start spending more,” said Barnard.

Barnard points out that a similar scenario could result if Bush is polling strong. If that happens, Barnard believes spending on infrastructure or business expansion could increase.

“Consumer spending is going to be dictated not by the outcome of the election or anticipation of an outcome, but by the pocketbook realities that dominate the marketplace,” Barnard concluded.

Retail sales in June were disappointing as retailers confronted tough comparisons, cool summer weather and higher energy prices. Of the 50 companies tracked by WWD, 21 recorded a decline in June comps, compared with just 13 in May. Despite the breather in June, some analysts are expecting consumers to start spending again heading into the back-to-school season. “New merchandise floorsets for fall/b-t-s are hitting the stores now and the continued centrality of the home and strong digital products cycle provide compelling reasons for shoppers to get back into the stores,” wrote Dana Telsey, a retail analyst with Bear Stearns, in a report Friday on the state of the consumer. She also noted that “any softening of energy/food prices will add incremental dollars to consumers’ pockets.”

Hastings, however, foresees less spending as consumers become more focused on savings going forward. “I think you’re going to see, regardless of [the election’s outcome], consumers slowly beginning to save money,” said Hastings. “They’re carving some of that out of spending. That’s going to happen regardless of who comes in. If you raise interest rates you could get more of that.”

THE ISSUES: BUSH & KERRY

George Bush
 
John Kerry
“Health insurance costs for employers have been rising by 10 percent per year since 2000, causing businesses to hire fewer new employees and too many families to go without insurance.” (From Web site).
HEALTH CARE
Provide more tax breaks to the middle class on health care and college tuition
Open new markets for American products through better trade agreements
TRADE
Enforce trade laws to provide even playing field for U.S. goods
Ensure energy supplies, reduce dependence on foreign oil, increase domestiic energy production
OIL
Reduce dependence on foreign oil
Reduce number of lawsuits by allowing more class action suits to move into Federal court
OTHER
Increase minimum wage, indexing it to inflation