U.S. Holiday Spending May Be Even Weaker Than Expected

The holidays aren’t likely to deliver much cheer for retailers, and the New Year is expected to ring in more debt defaults from ailing merchandisers, especially those in the specialty sector with heavy debt burdens, said Moody’s Investor Service in a new retail sector outlook.

Moody’s said it has grown more pessimistic because it believes holiday spending this year will prove even weaker than many expect. The ratings agency is keeping a close eye on retailers involved in the credit card business, such as Target Corp. (TGT) and Nordstrom Inc. (JWN), in light of the severe downturn in financial markets.

Beyond the holidays, our view is that uncertainty about jobs, stock prices and the overall economy will keep consumers focused on the essentials, weighing on most retailers’ credit fundamentals. For these reasons, our outlook is negative and we expect that the forward trend in ratings will be downward.

The exceptions to the gloomy outlook, not surprisingly, are big-box retailers such as Wal-Mart Stores Inc. (WMT), Costco Wholesale Corp. (COST), and Target, and supermarkets on which consumers rely for staples, although even they may not be immune to the consumer-led downturn, Moody’s said.

For details, see “Industry Outlook: U.S. Retail.”