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July US retail sales blow past expectations; 1 new bankruptcy

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July US retail sales blow past expectations; 1 new bankruptcy

Back-to-school shopping and eating out helped push US retail sales well past expectations in July.

Retail and food service sales grew 0.7% in July from June, marking the fourth-straight month of increases, according to US Census Bureau data released Aug. 15. Economists expected a 0.4% monthly gain for July, according to data compiled by Econoday. While the result was strong, some categories, including vehicles and furniture, are showing weakness as interest rates remain elevated . The monthly gain also raises the risk of a pullback in spending later in the year, said Oren Klachkin, lead US economist for Oxford Economics.

"Incomes are bound to weaken as the economy dips into a recession, elevated interest rates will make it expensive to borrow, and excess savings won't be able to fill the void," Klachkin said in an Aug. 15 note.

Meanwhile, just a single retailer filed for bankruptcy protection from mid-July through Aug. 14, while default risk ticked slightly lower, according to S&P Global Market Intelligence data.

Retail sales

The advance estimate for US retail and food services sales totaled $696.35 billion in June, up from a revised $691.31 billion in June, according to Census Bureau data. July sales increased by 3.2% on an annual basis.

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Nonstore retailers — a category that includes e-commerce, door-to-door sales and vending machines — registered one of the largest monthly increases among major retail categories, growing 1.9% over June. Clothing and accessories stores also registered a notable gain at 1.0% month over month. Sales at bars and restaurants grew by 1.4%.

"July retail sales show consumers continue to drive the economy through this period of economic pressure with robust spending supported by steady job growth and wage gains," National Retail Federation President and CEO Matthew Shay said in an Aug. 15 note. "Retailers remain focused on providing essential items at competitive prices for families and students as we approach the end of an expected record back-to-class shopping season."

On an annual basis, nonstore retailers also recorded one of the highest gains among retail categories, with a 10.3% increase. Food services and drinking places sales grew even more at 11.9%.

Furniture and home furnishing stores logged the largest monthly decline at 1.8%, followed by electronics and appliance stores at 1.3%.

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Gasoline station sales continued to weigh on overall retail growth over a year ago, with the category recording a 20.8% year-over-year decline largely due to lower gas prices.

Bankruptcies

CPI Luxury Group, which sells pearls and other jewelry, filed the sole bankruptcy case by a US retailer for the month ending Aug. 14. The company sells its products in department stores and online.

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As of Aug. 14, 19 retailers filed for bankruptcy in 2023, an increase from the same periods in 2021 and 2022.

Default risk

Median default risk across all retail categories fell to 2.3% as of Aug. 14 from 2.5% on July 18, according to Market Intelligence's Market Signal probability of default model. Default risk decreased across most retail categories, with personal care products recording the largest decline.

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Scores produced by the model represent the odds of default within a year and are based primarily on the volatility of share prices for public companies in the sector, accounting for country- and industry-related risks.