U.S. retail sales rebounded in May after three consecutive months of decline as the coronavirus lockdowns eased, but experts say the path to economic recovery would be long and full of uncertainties.

"The economy kicked off in May as retailers and other businesses reopened and both stimulus money and supplemental unemployment checks fueled spending driven by pent-up demand from two months of shutdowns," Jack Kleinhenz, chief economist at the National Retail Federation, said in a June 16 statement. "But full recovery is still a long way off."

Meanwhile, six retailers went bankrupt in late May through mid-June period, including traditional brick-and-mortar retailer J. C. Penney Co. Inc., according to an S&P Global Market Intelligence analysis.

Retail sales

U.S. retail and food services sales increased 17.7% in May over the previous month to $485.55 billion, according to a report released June 16 by the U.S. Census Bureau. The increase in sales is the largest monthly jump on record since the Commerce Department began tracking the data in 1992.

"[T]he consumer roared back to something not far from normal in May, at least in terms of retail sales," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a research note.

Betsey Stevenson, an economics professor at the University of Michigan, told Market Intelligence that the sales figures reflect an increase in household incomes as a result of the CARES Act that passed in March.

"Retail spending is still well below pre-pandemic levels and it's unclear when there will be a full recovery. The increase in May is unlikely to be continued into the summer as the boost to unemployment insurance wears off and permanent job loss continues to grow," Stevenson said in an email.

During May, sales at furniture and home furniture stores grew 89.7% month on month in May to $7.72 billion. Nonstore sales, the category that includes e-commerce, rose 9% to $86.41 billion.

Miscellaneous store retailers saw a month-over-month increase of 13.6% in sales to $8.61 billion. Food services and drinking places registered a sales increase of 29.1%. Sales in the subsector were $38.63 billion for the month.

"[W]hile there is an attraction to very strong growth figures, we should remember that these categories are recovering from depressed levels," Lydia Boussour, senior U.S. economist at Oxford Economics, said in a note.

Economists warned that the sector faces an uncertain path to recovery.

"Going forward, wallets are primed, increased foot traffic shows that consumers are returning to stores, and retailers are ready to meet their demand, but we are likely to remain on a roller coaster for a while," Kleinhenz said.

Boussour predicts the recovery in consumption will continue as the U.S. emerges from the pandemic-related lockdowns, but it will be "restrained by lingering virus fear and constrained income growth."

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The consumer price index declined by 0.1% in May from the previous month, data released June 10 by the U.S. Bureau of Labor Statistics showed.

Prices increased 0.1% year on year.

The core CPI, which excludes food and energy prices, fell 0.1% in May, registering its third consecutive monthly decline. Meanwhile, prices for food rose 0.7% in May following a 1.5% increase in April.

Apparel prices decreased 2.3%, with prices of men's and boys' apparel declining by 2.8%. Prices for women's and girls' apparel decreased 2.9% in May.

Bankruptcy

Six Market Intelligence-covered U.S. retail companies went bankrupt in late May and early June, bringing the total bankruptcy count for 2020 to 29. The year-to-date total is slightly behind the 32 bankruptcies in 2019 and 33 in 2018.

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.

U.S. department store chain J. C. Penney filed a voluntary petition for reorganization under Chapter 11 on May 15. The company secured commitments for $900 million in debtor-in-possession financing from existing lenders, including $450 million in fresh capital. At the time of the filing, J. C. Penney said it will also explore additional opportunities, including a third-party sale process.

Bloomberg News reported June 15 that Authentic Brands Group LLC and property companies Simon Property Group Inc. and Brookfield Property Partners LP could partner to buy J. C. Penney.

Apparel maker Centric Brands Inc. filed a voluntary petition for reorganization under Chapter 11 on May 18.

Fairn & Swanson Inc., a retailer of duty-free products for the travel retail industry, filed a voluntary petition for liquidation under Chapter 7 in the U.S. Bankruptcy Court for the Northern District of California on June 2.

Off-price retailer Tuesday Morning Corp. and Libbey Glass Inc., which manufactures, and markets glass tableware products, filed voluntary petitions for reorganization under Chapter 11 on May 27 and June 1, respectively.

Liftopia Inc. had an involuntary petition for reorganization under Chapter 11 filed against it on June 2. The company operates Liftopia.com, a platform that retails ski lift tickets.

Employment

The retail sector gained 367,800 jobs in May, reaching 13.7 million jobs, according to a June 5 monthly report from the U.S. Bureau of Labor Statistics. May's figure represents a 2.77% month-over-month gain as some U.S. retailers, including Lululemon Athletica Inc. and J. C. Penney, began reopening their stores during the month.

In contrast, the sector lost 2.1 million jobs in April and 46,000 jobs in March due to the coronavirus crisis.

Employment at clothing and clothing accessories stores increased by 94,800 jobs, an 18.96% increase from April to 594,900 jobs. Furniture and home furnishings stores added 40,400 jobs, up 16% from the previous month to 292,900 jobs.

Jobs at electronics and appliance stores declined by 94,700 jobs, or 21.81% month-over-month, to 339,600 jobs for May. Health and personal care retailers shed 21,600 jobs during May, down 2.27% to 931,600 jobs in total.

Vulnerability

A June analysis of the one-year probability of default scores identified 15 public retailers with scores ranging from 31.2% to 12% and corresponding implied credit scores of "ccc-" to "ccc+."

The calculated one-year probability of default remained unchanged for more than half of the retailers on the list.

Merion Inc., a provider of health supplements and personal care products, continued to top the list as the company's one-year probability of default was unchanged from May's iteration.

Natural products distributor Twinlab Consolidated Holdings Inc. moved to the No. 3 spot as its probability of default rose to 24.2%, from 18.4% the month prior. The move pushed several retailers down the list.

Cool Holdings Inc., which markets and distributes technology products, fell to the No. 8 spot as its probability of default decreased to 19.3%.

New to the list are specialty retailer RTW Retailwinds Inc. and Trans World Entertainment Corp., a retailer of entertainment products.

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.