Investors are growing more worried about retail

American retailers have shed jobs on an annual basis for the first time since 2010

The latest US  jobs report laid bare some of the sobering tribulations faced by American retailers: they’ve shed jobs on an annual basis for the first time since 2010, when the sector’s employment was just starting to rebound following the Great Recession. 

The challenges are mounting as Amazon.com  continues to grab market share in a secular trend in favour of e-commerce at the same time that cyclical consumption, the engine of US  growth, may be sputtering. Big-ticket spending items like autos have seen a marked slowdown in sales during 2017. And even maintaining the current pace of spending growth could prove difficult for US consumers: the household savings rate is at a nine-year low. 

“Weak consumption, another miss on auto sales and the drop in ISM non-manufacturing sparked another round of concerns that the expected medium-term slowing in consumption may already be materialising, “wrote Andrew Hollenhorst, Citigroup fixed income strategist in New York.

Rental-car companies showcase the latest signs of stress about firms that rise and fall on the back of the US consumer — and it appears across different asset classes. Nowhere is anxiety about the fate of American retailers more evident than in one of the most liquid exchange-traded funds tracking the sector. The SPDR S&P Select Retail ETF, which routinely sees short interest well in excess of 100 percent of the equity float, is down about 6 per cent year to date. This is an equal-weighted basket of retail stocks, in which Amazon’s price changes wield as much influence as those of the much smaller Five Below.

In the junk bond market, retail has separated itself from the pack in an undesirable fashion. In aggregate, spreads have tightened to levels not seen in three years, a trend the retail subgroup has completely bucked. A big gap in yields has emerged since last November:

While on the surface, the employment trends point to relative margin relief for physical retailers, there’s also cause to be concerned about volumes. Department stores continue to cede ground to non-store retailers.