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NEW YORK CITY-Moody’s Investors Service has changed its assessment of the US retail industry from negative to stable. Although the ratings agency says it believes the sector’s credit profile will be generally stable over the next 12 to 18 months, industry conditions remain weak.

“Consumers continue to face many pressures including high unemployment, low housing prices, and a reduction in available installment credit,” says Maggie Taylor, senior credit officer at Moody’s, in a release. “In addition, we believe the current consumer trend towards saving and repaying debt will continue over the intermediate term. This will likely make it challenging for industry conditions to materially improve from their very weak levels.”

Moody’s also notes that some specific sub-sectors will be strong, notably supermarkets, drugstores and chain discounters, while others will produce disappointing results. “Although certain sectors–such as the department stores and specialty retailers–are likely to experience further earnings pressure, the level of deterioration in these sectors is likely to moderate to a level that will not materially impact overall US retail credit profile over the medium term,” according to a release.

In addition, the stable outlook also reflects “the sizable portion of retail sales that are generated by the larger retail chains which are likely to be more stable,” the release states. Smaller “mom and pop” operations will continue to erode, according to Moody’s.

Moody’s also bases its more upbeat assessment on the success the industry has had in reducing expenses. The agency predicts that third-quarter earnings reports will continue to show year-over-year declines but the trend will flatten in the fourth quarter.

The action by Moody’s comes as the Conference Board says its Consumer Confidence Index, which had improved in August, declined in September. The overall index now stands at 53.1, compared to 54.5 in August. The Present Situation Index, measuring consumers’ assessment of current conditions, decreased to 22.7 from 25.4 the month before, while the Expectations Index declined to 73.3 from 73.8 last month.

“Consumer confidence, which had improved in August, retreated slightly in September,” says Lynn Franco, director of the Conference Board’s consumer research center, in a release. “The Present Situation Index decreased, as consumers viewed both current business conditions and the labor market less favorably than last month. While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes. With the holiday season quickly approaching, this is not very encouraging news.”

To learn more about retail’s future, watch this GlobeSt.TV interview with Tony Thompson.

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