Return of retail? Healthy US economy boosts sector outlook

Prospects for U.S. retailers are brightening, according to Moody’s Investors Service, which raised its outlook for the sector to positive for the first time since 2015.

“For the first time since July 2015, we are raising our outlook to positive from stable for the U.S. retail industry,” analysts wrote. “This marks a big change from just a year ago, when swaths of the retail industry were still slogging through a rising tide of distressed names and defaults.”

On Thursday, Moody’s Investors Service said it expects U.S. holiday retail sales to achieve “healthy” 5 percent to 6 percent growth this year, owing to “a healthy U.S. economy, consumer confidence and increasing wage growth,” which will all fuel consumer spending. It also cited positive trends in employment and GDP growth as enhancing prospects.

“The single biggest boost to our forecast … is a very strong macro-economic environment that is giving extra fuel to operating income and top-line growth,” the report stated.

Moody’s also raised its income growth forecast for the industry this year to 4 percent to 5 percent, from previous estimates of 3.5 percent, while expecting sales growth to come in as high as 5.5 percent. Positive trends should continue through 2019.

While Amazon and the rise of e-commerce disrupted the retail sector, which had “a tough run,” companies have been able to ramp up their digital presence. Moody’s said e-commerce still only comprises 15 percent of overall U.S. retail sales.

The ratings agency pointed specifically to Walmart, CVS and Walgreens as big names that will experience continued growth. Sharp declines at department stores, including Macy’s, will “continue to taper.”

Meanwhile a number of stores have recently seen increasing sales and growth, including Target and Nordstrom.

Retail sales this holiday season could hit a record $1.1 trillion.