The chart warning you to sell retail stocks

The GfK Consumer Confidence index is a monthly survey designed “to monitor the general public’s confidence in the British economy”, says GfK. Each month “it tracks changes in personal finance, the general economic situation, inflation, unemployment, the current purchasing climate, and consumer spending and saving”.

In short, it tells us how bullish or bearish Britain’s consumers are feeling.

What’s the latest?

Last week we learned that the July consumer confidence figure fell for the fifth month in a row, to its lowest reading since August 2009. This was the first chance UK consumers have had to respond to the austerity measures in the Government’s June emergency Budget.

What does this mean for UK retailers?

Look at the chart below. This shows the GfK Consumer Confidence index, moved forward three months, compared with the current year-on-year change in UK ‘mainly non-food’ sales. You can see that consumers tend to spend less on non-essential goods as they become more pessimistic.

Source: Bloomberg

Which in turn (see chart below) suggests that shareholders in the general retail sector should be primed for another fall in share prices…

Source: Bloomberg