U.S. retail sales unexpectedly declined in September, raising concerns about the U.S. economy and the strength of consumer spending.
Meanwhile, six retailers filed for bankruptcy during the late September through mid-October period, according to an analysis by S&P Global Market Intelligence.
U.S. retail and food service sales declined for the first time in seven months in September, dipping 0.3% from the previous month to a seasonally adjusted $525.56 billion, according to a report released Oct. 16 by the U.S. Census Bureau.
The retail spending report "solidifies concerns of the consumer's inability to perpetually support the economy alone," Stifel Chief Economist Lindsey Piegza wrote in a research note.
The strength of consumer spending has been a needed counterweight to worries about a potential recession and the ongoing U.S.-China trade war, Wells Fargo Senior Economist Tim Quinlan said in a research statement.
However, September's decline is the "first crack in the foundation," Quinlan said.
National Retail Federation Chief Economist Jack Kleinhenz said in a statement that the September slowdown compared to August could be a reaction to fears over U.S.-China tensions.
"September is a tricky month to measure because of seasonal factors like the end of summer and back-to-school spending, and this year's early Labor Day may have moved up some spending into the last days of August," Kleinhenz said.
He added that while uncertainty around trade policy and other issues has dampened consumer sentiment recently, "consumers still have a lot going for them as evidenced by longer-term trends and factors like the tight labor market."
Building material and garden equipment and supplies dealers saw the sharpest decline in sales in September at 1% to $31.82 billion.
Motor vehicle and auto parts sales dropped 0.9% from the previous month to $105.3 billion. Experts tracking the automotive industry have said they view the drop in auto sales as a momentary dip.
Nonstore sales, the category that includes e-commerce, decreased 0.3% to $66.82 billion.
Clothing and clothing accessories stores registered a 1.3% increase in sales to $22.81 billion. Sales at health and personal care stores increased by 0.6% to $29.82 billion during the month.
While retail sales declined, the consumer price index remained unchanged in September as compared to August, according to a monthly report released Oct. 10 by the U.S. Bureau of Labor Statistics. Prices increased by 1.7% year on year.
Apparel prices decreased by 0.4% in September versus the previous month. Prices for men's and boys' apparel increased 1.9% month over month, while prices for women's and girls' apparel declined 1.7%.
Footwear prices declined 0.1%, while prices of jewelry and watches declined by 1.1% in September.
Six Market Intelligence-covered U.S. retail companies filed for bankruptcy in late September through mid-October. The filings bring the bankruptcy count in 2019 to 31.
The total 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, while private companies must include at least $10 million.
Destination Maternity Corp. filed a voluntary petition for reorganization under Chapter 11 on Oct. 21. Prior to its bankruptcy filing, the maternity apparel-focused retailer held the No. 2 spot on Market Intelligence's list of publicly traded U.S. department stores and apparel companies most vulnerable to default.
Apparel retailer Forever 21 Inc. also filed a voluntary petition for reorganization under Chapter 11 on Sept. 29. The company listed both its assets and liabilities in the range of $1 billion to $10 billion.
The teen-focused retailer identified 178 underperforming U.S. stores for potential closure.
Terra's Kitchen LLC, which provides meal delivery services, filed a voluntary petition for liquidation under Chapter 7 in the U.S. on Sept. 24. Car dealership Lyons Chevrolet Buick GMC filed for Chapter 11 bankruptcy protection Sept. 26.
GP Rare Earth Trading Account LLC, which sells and distributes gemstones, filed for Chapter 11 bankruptcy protection Oct. 4.
A group of creditors, including HP Hood LLC and Cape Cod Cafe Foods Inc., filed an involuntary petition for liquidation under Chapter 7 against ice cream and frozen food distributor Dari-Farms Ice Cream Co. Inc. on Oct. 10. The total claim amount of the petitioning creditors was $500,000.
Women's apparel chain BonWorth Inc., which filed for Chapter 11 bankruptcy protection in August, has been removed from Market Intelligence's current list. Market Intelligence discovered that BonWorth's total assets and liabilities did not reach the threshold requirement for inclusion.
The retail sector lost 11,400 jobs in September, down to 15.7 million jobs. That is a decrease of 0.1% from August, according to an Oct. 4 monthly report from the U.S. Bureau of Labor Statistics.
Clothing and clothing accessories stores shed 13,800 jobs during the month, down 1% to 1.3 million jobs in total. Jobs at sporting goods, hobby, books and music stores declined by 4,200, or 0.7%, to 558,200 for the month.
Nonstore retailers registered a decrease of 0.5%, or 3,000 jobs during the month to 571,400 total.
Meanwhile, food and beverage stores added 9,000 jobs, or 0.3%, in September to 3.1 million jobs. Employment at motor vehicle and parts dealers rose by 4,900 jobs, a 0.2% increase to 2.1 million jobs.
An October analysis of the one-year probability of default scores identified 15 U.S. department stores and apparel companies with scores ranging from 13.9% to 2.3% and corresponding implied credit scores of "ccc+" to "b+."
The calculated one-year probability of default remained unchanged for most of the retailers on the list.
Christopher & Banks Corp. continued to top the list as the specialty retailer's one-year probability of default was unchanged from September's iteration.
Specialty retailer Ascena Retail Group Inc. moved to the No. 7 spot as its one-year probability of default increased to 7.0% from 2.7% in the prior month.
Stage Stores Inc.'s calculated one-year probability of default ticked up to 7.7% from 7.5%.
With Destination Maternity Corp.'s removal from the list after its filing for bankruptcy, several of the companies shifted positions and Children's Place Inc. moved into the No. 15 spot with a 1-year probability of default of 2.3%.
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 whitepaper.