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September retail market: US sales growth slows; bankruptcies reach 10-year high

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September retail market: US sales growth slows; bankruptcies reach 10-year high

U.S. retail sales trailed economist expectations in August as two retailers filed for bankruptcy in late August through mid-September, pushing the year-to-date bankruptcy total to a 10-year high, according to an S&P Global Market Intelligence analysis.

Retail and food services sales rose 0.6% over July amid the coronavirus pandemic, missing the consensus estimate of economists polled by Econoday of a 1% increase.

The 0.6% spending growth figure marks a slowdown from the revised 0.9% gain in retail sales in July. "Retail sales had exceeded the pre‐pandemic level by July, an amazing comeback that speaks to the extreme vigor of the goods sector of the economy. So, it was going to be difficult to achieve further big gains at the margin," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a research note.

Consumer spending likely slowed down due to the expiration of federal unemployment benefits at the end of July.

"Over the past several months, consumers have responded well to federal relief measures that have supported the recovery, so it comes as no surprise that they would pause spending as some of these programs tapered off at the end of July," Matthew Shay, president and CEO of the National Retail Federation, said in a Sept. 16 statement.

Retail sales

U.S. retail and food services sales increased to $537.53 billion in August, according to seasonally adjusted data released Sept. 16 by the U.S. Census Bureau.

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James Watson, senior U.S. economist at Oxford Economics, said in a note that recovery remains fragile. "Today's data indicate that spending momentum has eased and that the path towards continued recovery will be harder ahead. With the boost from re-openings largely past and fiscal support ebbing, households face a risk-filled fall with less support for their pocketbooks."

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

Food services and drinking places saw a month-over-month sales increase of 4.7%, with sales totaling $54.64 billion in the subsector. The category had seen a 4.1% increase in July.

"That is good news and indicates that neither the summer surge in the virus, which caused some cities and states to re‐tighten limits on indoor dining, nor the end of the $600/week bonus jobless benefits at the end of July have dented the path back toward normal," Stanley said.

Receipts at clothing and clothing accessories retailers increased 2.9% to $17.73 billion.

Furniture and home furniture stores logged a 2.1% increase in sales to $10.23 billion while spending at building material and garden equipment and supplies dealers rose 2% to $37.26 billion.

Sporting goods, hobby, musical instrument and book retailers saw the sharpest decline in sales in August at 5.7% to $7.43 billion. Food and beverage stores, a category that includes grocery stores, registered a 1.2% decline in sales to $71.05 billion.

Consumer prices

The consumer price index rose 0.4% in August on a month-over-month basis after increasing 0.6% in July, a report released by the U.S. Bureau of Labor Statistics showed.

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Prices increased 1.3% on a year-on-year basis before seasonal adjustment.

The core CPI, which excludes food and energy prices, also advanced 0.4% in August. Prices for used cars and trucks registered the largest monthly gain since March 1969 with a 5.4% jump.

Apparel prices increased by 0.6% on a month-over-month basis. Both men's and boys' apparel and women's and girls' apparel recorded a 0.8% increase in prices.

Bankruptcy

Two Market Intelligence-covered U.S. retail companies went bankrupt in late August and early September, bringing the total bankruptcy count for 2020 to 46. The total number of bankruptcies exceeds the number of filings in any year since 2010.

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. 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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Interstate Commodities Inc., which offers lease cars for grain, fertilizer, salt and other products, on Aug. 26 filed for Chapter 11 bankruptcy. The company claimed assets of $12.56 million and liabilities of $25.51 million in its filing.

Department store operator Century 21 Department Stores LLC filed a voluntary Chapter 11 petition Sept. 10. The company listed both its assets and liabilities in the range of $100 million to $500 million.

Employment

Retail employment continued to grow in August as the sector added 248,900 jobs, reaching 15 million jobs, according to a monthly report from the U.S. Bureau of Labor Statistics. In comparison, the sector gained 236,200 jobs in July.

Employment in the sector is still 655,000 jobs below the levels seen in February.

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In August, employment at electronics and appliance stores rose 5.08%, or 20,800 jobs, to 430,300 jobs.

General merchandise stores added 116,400 jobs, up 3.75% from July to 3.2 million jobs. Furniture and home furnishings stores registered an increase of 2.65%, or 10,500 jobs during the month to 407,200 total.

Vulnerability

In September, Market Intelligence identified 15 public retailers for its vulnerability list, which now includes companies scored on or after March 31.

The list involves companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and secondary classification of retailing. The one-year probability-of-default score among these companies ranged from 38.1% to 12.2%, and their corresponding implied credit scores were "ccc-" to "ccc+."

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Health supplements and personal care products provider Merion Inc. topped the list with a probability of default of 38.1%, followed by Twinlab Consolidated Holdings Inc. with a score of 27.1%.

Merion and Twinlab did not respond to a request for comment.

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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.