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November retail market: US sales growth cools; bankruptcies hit 11-year high

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November retail market: US sales growth cools; bankruptcies hit 11-year high

U.S. retail sales growth in October came in slower than expected and at its weakest pace in six months as consumers continue to rein in their spending amid the coronavirus pandemic, according to S&P Global Market Intelligence analysis.

Meanwhile, three retailers entered bankruptcy proceedings in late October through mid-November, pushing the year-to-date bankruptcy total to an 11-year high.

Retail and food services sales increased 0.3% in October over the previous month, missing the consensus estimate of economists polled by Econoday of a 0.4% rise. The figure also marks the weakest pace of growth in six months.

"[W]aning momentum in consumer activity highlights the lingering fragility of individuals and households as local restrictions and safety protocols continue to impact incomes, revenues and opportunities," Lindsey Piegza, chief economist at Stifel, said in a note.

Retail sales

U.S. retail and food services sales increased to $553.33 billion, according to a report released Nov. 17 by the U.S. Census Bureau. The report comes amid a surge in coronavirus cases in the U.S.

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"October retail sales remained on track despite the pandemic continuing to affect households and businesses," National Retail Federation Chief Economist Jack Kleinhenz said in a statement. "The steady expansion of retail sales is good news against the background of these unusual economic circumstances and climbing virus cases in recent weeks."

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

But experts warn that the rise in COVID-19 cases could impact future growth in consumer spending.

"Heading into the key holiday season, any further limitations could help stem the spread of COVID-19 ... compound pressure on businesses and workers still struggling to stay afloat, potentially resulting in significantly slower or even negative growth," Stifel's Piegza said.

James Watson, senior U.S. economist at Oxford Economics, echoed similar concerns. "The deceleration is troubling ... total consumer spending has yet to recover fully," he said. "Without fresh fiscal stimulus, any new lockdown measures could have a serious effect on consumer spending and wider activity."

During October, nonstore sales, the category that includes e-commerce, increased by 3.1% to $88.16 billion. Electronics and appliance stores registered an increase of 1.2% in sales to $7.76 billion.

Meanwhile, sales at clothing and clothing accessories retailers declined 4.2% month on month to $19.36 billion. General merchandise stores saw sales decline by 1.1% in October to $61.25 billion.

Department stores, a category within general merchandise, posted a decline of 4.6% in sales to $9.81 billion. Spending at food services and drinking places dropped 0.1% to $55.63 billion.

Consumer prices

The consumer price index was unchanged in October after rising 0.2% in the month prior, data released by the U.S. Bureau of Labor Statistics showed.

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Prices rose 1.2% year on year before seasonal adjustment. The core CPI, which excludes food and energy prices, was also unchanged in October.

Apparel prices declined 1.2%, with prices of men's and boys' apparel declining by 3%. Prices for women's and girls' apparel decreased by 0.9% during the month.

Bankruptcy

Three Market Intelligence-covered U.S. retail companies went bankrupt in late October to early November, bringing total year-to-date bankruptcies to 49. The figure exceeds the number of filings in any year since 2009.

The bankruptcy count includes companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and secondary classification of retailing. Market Intelligence's analysis is limited to public companies or private companies with public debt where either assets or liabilities at the time of the bankruptcy filing are at least $2 million. Private companies without public debt must report at least $10 million in either assets or liabilities at the time of filing.

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Emerald Health Bioceuticals Inc., which manufactures phytocannabinoid products, filed a voluntary petition for liquidation under Chapter 7 on Oct. 20, listing liabilities of $11.15 million.

Arkansas-based home furniture retailer Furniture Factory Ultimate Holding LP filed for Chapter 11 bankruptcy on Nov. 5, while Furla (U.S.A.) Inc., which manufactures and sells leather handbags, declared bankruptcy Nov. 6.

Employment

The retail sector gained 103,700 jobs in October, reaching 15.2 million jobs, according to a monthly report from the U.S. Bureau of Labor Statistics. The figure represents a month-over-month gain of 0.69%.

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Employment at electronics and appliance stores increased by 31,200 jobs, a 7.24% increase from September to 461,900 jobs. Furniture and home furnishings stores added 13,600 jobs, up 3.27% from the prior month to 429,300 jobs.

Jobs at nonstore retailers rose by 8,500 jobs, or 1.54% month over month, to 560,700 jobs in total for October. Health and personal care retailers shed 1,500 jobs, down 0.15% to 982,900 jobs.

Vulnerability

A November analysis of the one-year probability of default scores identified 15 public retailers with scores ranging from 31.2% to 12.7% and corresponding implied credit scores of "ccc-" to "ccc+".

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Merion Inc., a provider of health supplements and personal care products, continued to top the list, but its one-year probability of default dropped to 31.2% from 38.1% in October. Natural products distributor Twinlab Consolidated Holdings Inc. still holds the No. 2 spot with a probability of default score of 27.1%

Online mattress retailer Casper Sleep Inc., which went public in February, is among the companies that are new to the list this month.

Merion and Casper Sleep did not respond to requests for comment, while Twinlab could not be reached.

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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.