U.S. consumers tightened their purse strings in November amid rising COVID-19 cases and new restrictions on dining and shopping outside of the home.

Retail and food services sales dropped 1.1% month over month in November, following a revised 0.1% decrease in October. The consensus estimate of economists polled by Econoday was for a 0.3% decrease.

"The weaker than expected November retail sales figures, coupled with a slight downward revision for October, suggest that U.S. consumers are becoming increasingly careful with their discretionary retail spending," Quincy Krosby, chief market strategist at Prudential Financial, said via email. "To be sure, the spread of COVID-19 with headlines highlighting impending restrictions and lockdowns, unemployment claims inching higher, and the ongoing negotiations for a fiscal stimulus/relief package have taken their toll on consumer spending."

Meanwhile, two retailers sought bankruptcy protection in late November through mid-December, according to an S&P Global Market Intelligence analysis. Employment in the retail sector also declined in November over the prior month.

Retail sales

U.S. retail and food services sales dropped to $546.5 billion, according to seasonally adjusted data released Dec. 16 by the U.S. Census Bureau.

"The 4th warmest November on record wasn't enough to prevent a consumer spending cold snap," Gregory Daco, chief U.S. economist at Oxford Economics, said in a note. "[T]his November report reinforces the fact that spending is struggling as virus cases surge, job growth slows and fiscal support lapses."

Experts cautioned the spread of the virus could affect holiday spending.

Prudential Financial's Krosby said that while there is optimism around holiday spending as the U.S. starts vaccine rollout, consumer spending might moderate as the virus continues to spread at a faster pace.

Daco echoed similar thoughts, saying that while vaccinations represent "light at the end of the dark COVID tunnel," herd immunity is months away.

"A distressing third COVID-19 wave has led to widespread hospitalizations and deaths across the country along with resurging virus fear and new social distancing rules. With mobility slowing, employment softening, and demand hesitant, the holiday season could turn out to be rather miserable," he said.

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Jack Kleinhenz, chief economist at the National Retail Federation, said in a statement that the month-on-month decline in November is not surprising because some spending was pulled forward into October as consumers shopped early. "[W]e have to remember the remainder of the holiday season depends critically on the virus. We are optimistic, but spending could shift into a lower gear if the virus continues to spread."

During November, food services and drinking places saw sales decline 4% to $53.2 billion. "As states and cities continue to impose additional restrictions, this element of consumption is going to get worse before it gets better," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note. "But it will get better next year."

Clothing and clothing accessories stores saw a 6.8% decline in sales to $18.48 billion. Sales at electronics and appliance stores dropped 3.5% from the previous month to $7.42 billion.

Food and beverage stores posted a 1.6% gain from October as sales during November totaled $71.37 billion. Nonstore retailers registered an increase of 0.2% to $87.47 billion during the month.

Consumer prices

Consumer prices rose 0.2% in November from the previous month, according to a monthly report released by the U.S. Bureau of Labor Statistics. On a year-on-year basis, prices increased 1.2% before seasonal adjustment.

Core CPI, which excludes food and energy prices, also rose 0.2% during November after being unchanged the prior month. Food prices dropped 0.1% in November, while energy prices rose 0.4%.

Apparel prices increased 0.9% in November after declining in October and September. Prices for men's and boys' apparel rose 2.1%, while prices for women's and girls' apparel were unchanged during the month.

Bankruptcy

Two Market Intelligence-covered U.S. retail companies went bankrupt in late November to early December, pushing the year-to-date count to 51. 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.

Music product retailer Guitar Center Inc. filed a voluntary petition for reorganization under Chapter 11 on Nov. 21. The company listed more than $1 billion in liabilities, making it one of the largest bankruptcies of the year. Boutique clothing chain Francesca's Holdings Corp. filed for Chapter 11 bankruptcy Dec. 3 with plans to implement a sale process.

Employment

The retail sector lost 34,700 jobs in November, a 0.23% month-on-month decrease to 15.12 million jobs, according to data from the U.S. Bureau of Labor Statistics.

Employment at sporting goods, hobby, books and music stores declined by 12,100 jobs, or 2.65% from the month prior, to 445,200 jobs. Electronics and appliance retailers recorded a decrease of 2.48%, or 11,300 jobs, during November to 444,000 jobs.

Meanwhile, furniture and home furnishings stores added 5,800 jobs during the month, up 1.35% month over month to 434,700 jobs. Miscellaneous store retailers registered an increase of 0.51%, or 3,700 jobs, to 736,300 jobs.

Vulnerability

A December analysis of the probability of default scores identified 15 public retailers for Market Intelligence's vulnerability list, which involves companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and a secondary classification of retailing.

The one-year probability-of-default score among these companies ranged from 31.2% to 11.2%, and their corresponding implied credit scores were "ccc-" to "ccc+."

Merion Inc., which provides health supplements and personal care products, topped the list with a probability of default score of 31.2%, followed by Twinlab Consolidated Holdings Inc. with a score of 24.8%.

Casper Sleep Inc. was on the No. 13 spot on the list, with a probability of default score of 12.7%. The online mattress retailer made its public debut in February.

Representatives for Merion, Twinlab Consolidated and Casper Sleep did not respond to requests for comment.

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.