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August retail market: US sales rise 1.2%; bankruptcies rival decade-ago levels

U.S. retail sales grew more slowly than expected in July and retailer bankruptcies are reaching record levels, but restaurants and products like electronics outperformed forecasts for the month.

Overall, retail sales in July rose 1.2% as the coronavirus surged in certain parts of the country. That is slower than the consensus estimate of 2% growth, according to Econoday. Weak car sales dogged growth. Excluding sales of cars and gasoline, sales were 1.5%, above the estimate of 0.9%.

The monthly numbers suggest that in the U.S. the economic bounce-back from coronavirus-related job losses and store closures earlier this year was "on track" in July, Calvin Schnure, senior economist at Nareit, said in an interview.

While some consumers' budgets are likely to suffer when the pandemic-prompted federal unemployment benefits expire July 31, those who still have incomes have been saving more of their money during the pandemic, Schnure said. "Ultimately, [today's report] says that there's still a lot of spending power in the sector," he added.

But getting U.S. consumers to open their wallets will likely continue to be a challenge, National Retail Federation Chief Economist Jack Kleinhenz said. "While households are spending, they are anxious about their health and economic well-being, so they are being pragmatic," he said in a statement.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

That conservative approach to spending played a role in some of the six retail bankruptcies filed in July and August.

Retail sales

Retail sales rose to $536 billion, according to the Census Bureau. Despite weakness in auto-related sales, that total is still 2.7% above the 2019 result.

U.S. consumers increased their month-over-month spending on electronics, appliances and clothing, while sales at auto dealers and sporting goods stores declined, according to data from the U.S. Census Bureau.

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The bureau also revised its estimate for June retail sales growth upward, saying sales during the month grew 8.4% instead of the previously reported 7.5%.

July's results show that "the consumer continues to recover faster than generally expected," Amherst Pierpont Chief Economist Stephen Stanley wrote in a research note Aug. 14. Consumers upped their spending the most on discretionary items such as electronics but limited their spending on essentials such as food and personal care products compared to recent months. Growth in categories such as groceries was close to flat, according to federal data.

Sales at restaurants rose 5%, a particularly positive sign given predictions that the U.S. economy would flounder again in the face of spikes in coronavirus cases in June and July, Stanley wrote. "I think it is fair to conclude that the economy held up considerably better than many feared last month," he said.

But some economists remain worried about retail sales and consumer spending. COVID-19 continues to ravage the Southwest, forcing new lockdowns and making it harder for consumers to leave their homes and spend money, Cambridge Global Payments Chief Market Strategist Karl Schamotta wrote Aug. 14. Along with short-term inaction from Congress on a fresh round of relief measures, "households may also be battening the hatches for an income shock in the weeks to come."

Consumer prices

Consumer prices rose 0.6% in July, the same pace as in June, according to the U.S. Bureau of Labor Statistics. Year over year, the index, known as the CPI, rose 1%.

The CPI excluding food and energy rose 0.6%, its fastest clip since January 1991, the bureau said. Prices for boys' apparel, sewing machines, fabric and supplies helped lead the index higher.

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Bankruptcy

The six retail companies that filed for bankruptcy in late July to mid-August brings the 2020 total so far to 44, eclipsing the full-year total for 2019 and rivaling the 45 filings on record for all of 2011, according to an S&P Global Market Intelligence analysis.

The analysis includes companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and a secondary classification of retailing. Public companies included in the list of companies with public debt must have at least $2 million in either assets or liabilities at the time of the bankruptcy filing. In comparison, private companies must include at least $10 million.

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Stein Mart Inc. was among the highest-profile bankruptcies during the period. The company plans to close all of its 279 stores, according to an Aug. 13 statement. The off-price department store chain said as part of its Aug. 12 filing that it would seek to sell other elements of its business, including its e-commerce arm.

Other key bankruptcies included Tailored Brands Inc., owner of JoS. A. Bank and Men's Warehouse, as well as clothing rental company Le Tote Inc. and Ascena Retail Group Inc.., which owns Ann Taylor and Loft.

Employment

The U.S. retail sector added 258,300 jobs in July, bringing the total to 14.8 million, a 1.8% increase month over month, according to a report from the Bureau of Labor Statistics.

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Among the subsectors that contributed the most to the increase were clothing and clothing accessories, where the number of jobs rose 15% to 924,500. Employment in electronics and appliance increased 8% to 411,000.

Vulnerability

An August analysis of the one-year probability of default scores identified 15 public retailers with scores ranging from 38.1% to 13.7% and corresponding implied credit score of "ccc-" to "ccc+."

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Additions to the list for the month include apparel retailers J.Jill Inc. and Destination XL Group Inc. J.Jill has extended a forbearance period multiple times in recent months. Its current extension, announced Aug. 13, will last until Aug. 27 and prevents creditors from taking action against the chain.

Destination XL, meanwhile, has canceled orders amounting to 28% of its planned 2020 receipts and was in discussions with landlords on missed lease payments in early June, executives said on the company's first-quarter earnings call.

Representatives for J. Jill and Destination XL Group did not immediately respond to requests for comment from Market Intelligence.

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S&P Global's Fundamental Probability of Default Model provides a fundamentals-based view of credit risk for corporations by assessing both business risk — including country risk, industry risk, macroeconomic risk, company competitiveness and company management — as well as financial risk, such as liquidity, profitability, efficiency, debt service capacity and leverage. For a more thorough review of the model, see the PD Model Fundamentals - Public Corporates white paper.