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January retail market: Sales rise in December; 2 companies go bankrupt

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January retail market: Sales rise in December; 2 companies go bankrupt

U.S. retail sales increased in December, pointing toward strong consumer spending at the end of the holiday season, experts said.

Meanwhile, two new bankruptcies hit the retail industry in late December and early January and employment in the sector increased during the month, according to an analysis by S&P Global Market Intelligence.

Retail sales

U.S. retail and food services sales increased over the previous month by 0.3% on a seasonally adjusted basis to $529.61 billion in December, according to a report released Jan. 16 by the U.S. Census Bureau.

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Jack Kleinhenz, chief economist at the National Retail Federation, or NRF, attributed the rise in December retail sales to a late holiday season. The monthly gains came partly because two days of the Thanksgiving shopping weekend — Sunday and Cyber Monday — fell in December instead of November, Kleinhenz said.

"We've had months of strong employment numbers, high wages and strong household balance sheets. There's no doubt that gave consumers a sense of confidence about their ability to spend, and they did their part to keep the economy moving," Kleinhenz said.

The overall sales increase in December comes after U.S. retailers including Target Corp. and J. C. Penney Co. Inc. reported weak holiday sales. However, holiday retail sales — excluding automobile dealers, gasoline stations and restaurants — grew by 4.1% in 2019 from a year prior, according to the NRF.

"The consumer has put the economy in a solid position for continued growth," NRF President and CEO Matthew Shay said of the holiday sales figures.

December sales data shows "the strength of the consumer as the economy continues its upward trajectory," Moody's Vice President Mickey Chadha said

"We continue to expect that increased consumer confidence, wage growth, low unemployment and the continued GDP growth in the US will result in 2020 retail sales growth," Chadha said.

But some economists do not expect the consumer to carry the economy alone. "The consumer ... while proving more resilient than originally expected will likely prove incapable of alone supporting the economy – at least indefinitely — without assistance from other key areas such as business investment and manufacturing," Lindsey Piegza, chief economist at Stifel, said in a research note commenting on the retail sales.

Admir Kolaj, economist at TD Economics, said that the gain in December provides a "solid handoff" to retail sales at the start of 2020.

"Strong consumer fundamentals, including still-sturdy job and income growth, should help carry the healthy consumption trend forward," Kolaj said.

The U.S. and China on Jan. 15 signed a partial trade deal, pausing their nearly two-year trade conflict. The "phase one" trade agreement includes China's pledge to purchase more than $200 billion of additional U.S. goods over the next two years. Kolaj expects the deal to lend "additional support" to the American consumer for the time being.

Sales at gasoline stations led an overall rise in sales. The subsector registered a month-over-month sales increase of 2.8% to $45.05 billion for the month.

Spending at clothing and clothing accessories stores increased by 1.6% to $22.65 billion during December. Building material and garden equipment and supplies dealers registered a 1.4% increase in sales to $32.09 billion. Sales at general merchandise stores advanced 0.6% month over month in December to $59.64 billion.

Meanwhile, motor vehicle and parts dealers registered a sales decline of 1.3%. Sales in the subsector were $106.64 billion for December.

The consumer price index, or CPI, rose 0.2% in December from the month prior, according to a monthly report released Jan. 14 by the U.S. Bureau of Labor Statistics. Prices jumped 2.3% year over year.

The core CPI, which excludes food and energy prices, increased 0.1% during the month. Energy prices jumped 1.4%, while food prices rose by 0.2%.

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Apparel prices increased by 0.4% in December versus the previous month. Prices for men's and boys' apparel declined by 0.2% month over month, while prices for women's and girls' apparel increased by 1.3%.

Footwear prices decreased by 0.1%, while the prices of jewelry and watches declined by 0.8% in December.

Bankruptcy

Bankruptcy proceedings began against two companies during the late December through early January period. In 2019, 32 companies went bankrupt in total.

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.

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Effex Management Solutions, LLC, MDMartin LLC and Lark LLC on Dec. 30 filed an involuntary petition for liquidation under Chapter 7 against CVE Group Inc. The company processes, repairs, and refurbishes consumer products. A group of creditors including Rancilio Cube Srl on Jan. 15 filed an involuntary petition for liquidation under Chapter 7 against online retailer Armadio Inc.

Employment

The retail sector added 41,200 jobs in December, a 0.26% increase from November to 15.8 million jobs, according to a Jan. 10 monthly report from the U.S. Bureau of Labor Statistics.

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Employment at clothing and clothing accessories stores increased by 33,200 jobs, or 2.59% month-over-month, to 1.3 million jobs.

Electronics and appliance stores added 2,600 jobs, up 0.56% from November to 470,700 jobs. Building material and garden supply stores registered an increase of 0.54% or 7,100 jobs during the month to 1.3 million jobs.

Sporting goods, hobby, books and music lost 2,900 jobs, down to 548,400 jobs in December. That is a decrease of 0.53% from November.

Miscellaneous store retailers registered a decline of 0.67% or 5,500 jobs during the month to 813,500 jobs.

Vulnerability

A January analysis of the one-year probability of default scores identified 15 U.S. department stores and apparel companies with scores ranging from 13.1% to 2.4% 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.

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Christopher & Banks Corp. continued to top the list as the specialty retailer's one-year probability of default was unchanged from December's iteration.

DGSE Cos. Inc., which changed its name to Envela Corp. in December, still holds the No. 13 spot on the list as its probability of default remained unchanged.

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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 whitepaper.