Flat US retail sales in August beat expectations of decline; 3 new bankruptcies

US consumer spending in August remained firmer than expected, providing another optimistic economic indicator as the Federal Open Market Committee began its rate-setting September meeting.

Total sales at retailers and food service establishments in August were flat on the month, with an increase of less than 0.1% from July, but up 2.1% from a year earlier, according to advance US Census Bureau estimates released Sept. 17. That beat economists' forecasts of a 0.3% decline, according to consensus estimates compiled by Econoday.

"In our view, today's retail sales report shows that, while perhaps showing signs of moderation, the consumer is not yet tapped out," Edward Jones Associate Analyst Brock Weimer said in a research note. "Healthy but softening labor-market conditions, along with strong household balance sheets, should support consumption in the quarters ahead and help extend the economic expansion."

Meanwhile, three retailers entered bankruptcy proceedings during the month ended Sept. 17. The median default risk for all retail categories fell slightly from Aug. 14 to Sept. 16.

Retail sales

Total US retail and food services sales hit a record $710.77 billion in August, up from a revised $710.41 billion in July and $702.35 billion in June, according to Census Bureau and Federal Reserve Economic Data figures.

Though overall sales were flat month over month, they declined slightly in most major retail categories aside from nonstore retailers and health and personal care stores.

Spending in August saw the biggest gain at nonstore retailers with a 1.4% lift on the month and a 7.8% jump on the year. Through the first eight months of the year, sales in this category were also up 8.3% year on year.

"Online shopping seems to have made up for declines in other areas," said Kathy Jones, chief fixed income strategist with the Schwab Center for Financial Research, in a research note.

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Electronics and appliance stores recorded the biggest month-on-month sales decline with a 1.1% drop.

Compared with the same month a year ago, sales in August increased in most retail sales categories except for furniture and home furnishings stores and building material and garden equipment dealers.

Bankruptcies

Three retail bankruptcy announcements since Aug. 16 brought the total number of filings year to date to 26. Bankruptcy filings this year have already outpaced total annual filings in 2021 and 2022 and are set to exceed the 27 total filings in 2023.

Over the past month, Big Lots Inc.'s bankruptcy announcement was the largest in terms of liabilities at initial filing. The discount retailer said in a Sept. 9 statement that it had initiated voluntary Chapter 11 proceedings to facilitate an agreement it entered under which an affiliate of Nexus Capital Management LP would acquire substantially all of its assets and ongoing business operations. Big Lots operates 1,389 stores in 48 states and an e-commerce platform.

Big Lots said it had been adversely affected by recent macroeconomic factors such as high inflation and interest rates. Interest rates could begin to come down by the end of the year after inflation showed signs of easing in August.

Default risk eases

The median default risk for publicly traded US retailers on Sept. 16 was down to 2.3% from 2.4% on Aug. 14, according to S&P Global Market Intelligence data. The scores represent the median odds of default on debt within a year and are based primarily on the volatility of share prices for public companies on major US exchanges, accounting for country- and industry-related risks and other macroeconomic factors.

Default risk from mid-August to mid-September dipped in most retail categories. Risk for drug retail dropped the most among all retail categories with a 1.6 percentage point decline. However, drug retail still had the highest median default risk compared to other retail sectors.

Apparel retailers recorded the largest increase in median default risk, rising to 2.9% Sept. 16 from 2.2% Aug. 14.