Today, I have good news and bad.

The good news is, US shoppers opened their pocketbooks in May as states eased restrictions to contain the COVID-19 virus, boosting retail spending, and adding another sign the economy may be recovering from the lockdowns earlier this year.

Retail sales, a measure of purchases at stores, restaurants, auto dealers, online, etc. increased a seasonally adjusted 17.7% in May from a month earlier, the Commerce Department reported last month. The increase in retail sales in May was the largest on record. Still, retail spending remained below pre-pandemic levels in May, totaling $485.5 billion compared with $527.3 billion in February. From a year earlier, retail sales were down 6.1% in May.

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May’s month-over-month jump followed the largest monthly drop on record in April, a revised 14.7% decline. The swing in retail sales reflected the nature of the shock from the pandemic, where the coronavirus and related lockdown shut off an economy that previously was growing at a steady pace. Retail sales for June will be released next Thursday, and most forecasters expect another strong showing for last month.

Retail executives said government stimulus helped boost their sales at the end of April and in May and said continued spending will depend on the labor market’s recovery. “We’ve had a solid start to May in the U.S.,” said Doug McMillon, chief executive of Walmart, the country’s largest retailer. However, he also cautioned that sales could slow down again when the government stimulus checks go away at the end of this month.

The government sent one-time stimulus checks of up to $1,200 a person out in April and has separately provided financial help to businesses and workers. The current $600-a-week boost to unemployment benefits, which started flowing to unemployed workers in April, expires at the end of July – unless Congress and President Trump move to extend them.

And now for the bad news.

The Impending Retail Business Apocalypse

Because of the coronavirus and people’s buying habits moving online, retail stores are closing everywhere — often for good. Malls are going belly up. Familiar names like J.C. Penney, Neiman Marcus, J. Crew, and others have filed for bankruptcy. Increasingly, Americans’ shopping choices will continue to turn to Internet stores and survival-of-the-fittest national chains.

A recent research report from UBS predicts that 100,000 brick-and-mortar US retail stores will close by 2025, in a trend that started before the pandemic and has accelerated amid coronavirus-related shutdowns. I (and others I read) believe the UBS estimate is far too low, and it will happen much sooner than 2025.

The retail sector lost about 1.2 million jobs between March and June, according to the Bureau of Labor Statistics figures released last week. Many COVID-19 store closures that were supposed to be temporary will wind up being permanent. Among household names that have announced they’re shuttering some stores for good: Nordstrom, Bath & Body Works, Gap, and Zara.

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Microsoft plans to close all of its retail stores, a plan that “was originally in place for next year, but was accelerated by the COVID-19 pandemic,” according to The Verge, an American technology news website.

Coresight Research, which tracks retail store openings and closings, projects that a record 25,000 stores will close in 2020 alone — up from its pre-pandemic estimate of 8,000. Here too, I believe this forecast will prove to be too low. The prior record for closures was last year when 9,800 stores closed.

Coresight speaks to a lot of business liquidators about what’s in the closure hopper. Their recent conversations indicate that the pace of bankruptcies is going to rise significantly between now and year-end.

Take New York City, for example, where it’s not just tourist hotspots like Times Square that are littered with “For Rent” signs and vacant (or boarded-up) storefronts. “Even before the pandemic hit, we had a genuine vacancy crisis” throughout the five [NYC] boroughs,” Scott Stringer, the New York City comptroller, admits. COVID-19 has made it much worse.

While we’re hearing a lot of optimism following two better than expected jobs reports for May and June, I continue to predict we’re going to see a tidal wave of bankruptcies among small and medium-sized companies between now and the end of this year. And I would not rule out a few more big names as well before this is over.

The news on this front is going to get a lot worse before it gets better, in my opinion. When that happens, I expect consumers to become scared and cut back spending significantly. That likely means another recession, assuming we get out of the one we’re in – which is still questionable.

It also likely means the end of the bull market in stocks. That’s another really good reason to look at our Alpha Advantage Strategy which has the ability to invest long or short with the potential to make money in bull or bear markets. Take a look at its actual performance, net of all fees, in our fact sheet. This has been its best year ever. As always, past performance is no guarantee of future results.