U.S. Retail Sector: "Maximum Leverage" Means Major Contraction

You don't have to be a professional retail analyst to know that much of the sector has been in a world of hurt.

Anyone who has walked into a shopping mall in the past few years has probably noticed store closures.

On Sept. 30, Fox Business called it an "apocalypse" and added:

Some of the United States' most prominent retailers are shuttering stores or declaring bankruptcy in recent months amid sagging sales in the troubled sector.

The rise of ecommerce outlets like Amazon has made it harder for traditional retailers to attract customers to their stores and forced companies to change their sales strategies.

Yes, the rise of online shopping plays a role in the financial difficulties of brick-and-mortar locations, but there is also another big factor.

Review this chart and commentary from the October Elliott Wave Financial Forecast:


Retail stores and store companies have been shuttering for a while, but the rate of failure is rising. According to CoreSight Research, 11,000 stores have already closed in the first eight months of 2019, more than in any past year. Online competition certainly plays a role, but there is another culprit: "Retailers continue to grapple with excessive debt," reports The Wall Street Journal. The chart shows a new record high in U.S. nonfinancial business debt relative to GDP; the extreme level suggests that the woes of the retail sector will spread when the next contraction rolls into all sectors of the economy... In a recent warning, Moody's Investors Service said the growing pool of junk-rated companies could "swell dramatically in the next downturn." With credit quality lower than in 2007, Moody's concludes, "The default count could exceed the Great Recession peak of 14%." It's only a matter of time.

Prepare now for the "next contraction."

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