U.S. retail sales rose for the fifth month in September, smashing expectations for the month, though experts caution that the pace of recovery could level off in the coming weeks.

Retail and food services sales increased by 1.9% during the month, surpassing the consensus estimate of economists polled by Econoday of a 0.7% rise.

"Today's data indicate that consumers are still driving the recovery forward — but there is growing doubt that the pace of activity can be sustained as income growth moderates and savings are being drawn down," James Watson, senior U.S. economist at Oxford Economics, said in a note.

Meanwhile, no retailers entered bankruptcy proceedings in late September through mid-October in stark contrast to a year that has already seen more filings than any since 2010, according to an S&P Global Market Intelligence analysis. Employment in the retail sector also rose in September over the previous month.

Retail sales

U.S. retail and food services sales rose to $549.26 billion in September, according to seasonally adjusted data released Oct. 16 by the U.S. Census Bureau.

"Consumers continue to prove their resilience and strength through this pandemic. Retailers and consumers are adapting to the current environment, embracing shopping in different ways and focusing on specific categories," Matthew Shay, president and CEO of National Retail Federation, or NRF, said in a statement.

The overall rise in sales was led by consumer spending on clothing and clothing accessories, sporting goods and motor vehicles and parts.

Clothing and clothing accessories stores registered a month-on-month increase of 11% in sales to $19.48 billion in September. Spending at sporting goods, hobby, musical instrument and book stores rose 5.7% from a month earlier to $7.71 billion.

Motor vehicle and parts dealers saw sales increase by 3.6% to $114.8 billion. Receipts at food services and drinking places rose 2.1% from August to $55.6 billion in September but were down 14.4% on a year-over-year basis.

"Retail sales are continuing to build on the momentum we've seen through the summer," NRF Chief Economist Jack Kleinhenz said, adding that the sales figures and other economic data show "the nation's economy remains on its recovery path."

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But September's sales data comes amid fading hopes for a COVID-19 stimulus package ahead of the November election and a sharp rise in initial U.S. weekly jobless claims. Data released Oct. 15 showed jobless claims increased to 898,000 in the week ended Oct. 10 from a revised 845,000 claims in the week prior.

"What the positive surprise in retail sales indicates, and underscores, is that despite the rise in initial unemployment claims, the average consumer still has a job and is confident enough to spend," Quincy Krosby, chief market strategist at Prudential Financial, told Market Intelligence. "Still, if initial unemployment claims continue to rise, and if layoffs begin to focus on higher wage earners as corporations embark on cost-cutting strategies, consumer confidence and consumer spending could level off."

Watson of Oxford Economics also said the consumer recovery may not be able to hold its pace in the coming weeks. High-frequency indicators, such as mortgage applications, credit and debit card spend, suggest that recovery may "struggle to find direction," he added.

Consumer prices

The consumer price index, or CPI, increased by 0.2% in September from the prior month, a monthly report released by the U.S. Bureau of Labor Statistics showed.

Prices jumped 1.4% year on year.

The core CPI, which excludes food and energy prices, also rose 0.2% during the month. Prices for used cars and trucks jumped 6.7% in September, marking their largest monthly gain since February 1969.

Meanwhile, apparel prices declined 0.5% in September after logging in monthly increases during the past three months. Prices for men's and boys' apparel declined by 1.3% month over month, while prices for women's and girls' apparel increased by 0.3%.

Footwear prices declined 0.9%, while the prices of jewelry and watches rose 2.5% in September.

Bankruptcy

There were no bankruptcies during the late September through mid-October period. The bankruptcy total for 2020 remains at 46 and still exceeds the number of bankruptcy filings in any year since 2010.

The bankruptcy count includes companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and a 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 have at least $10 million.

Employment

The retail sector added 142,400 jobs in September, a 0.95% increase from August to 15.2 million jobs, according to a monthly report from the U.S. Bureau of Labor Statistics.

Clothing and clothing accessories stores added 39,800 jobs, up 4.31% from August to 964,200 jobs. Employment at sporting goods, hobby, book and music stores rose by 11,500 jobs, or 2.53% month on month, to 466,400 jobs.

Nonstore retailers registered an increase of 1.7%, or 9,300 jobs, during September to 554,800 jobs in total. Health and personal care stores added 15,900 jobs, up 1.64% from the month prior to 986,300 jobs.

Vulnerability

An October 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 38.1% to 13.2%, and their corresponding implied credit scores were "ccc-" to "ccc+."

Merion Inc., which provides health supplements and personal care products, continued to top the list with a probability of default score of 38.1%, followed by Twinlab Consolidated Holdings Inc. with a score of 27.1%. The companies did not respond to Market Intelligence's 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.