Will retailers be hit as consumer confidence sinks?

News that consumer confidence has fallen to its lowest level since 2009 has put another rate cut back on the RBA’s board table.

According to ANZ-Roy Morgan’s weekly survey, consumer confidence fell 1.1% in the past week, adding up to a 15% decline over the past five weeks. Much of the fall appears to be due to the Federal Budget ‘austerity’ measures, with many households and consumers under the impression (rightly or wrongly) that the budget is aimed squarely at their hip pockets.

And they may well be right, with another survey showing that consumer financial stress is rising rapidly.

Dun and Bradstreet’s quarterly Consumer Financial Stress Index shows that stress levels have risen by 43% from 13 in September last year to 18.7 currently. The index is forecast to rise to 24.7 points by July, its second-highest on record, as households struggle with debt repayments.

And while the Reserve Bank of Australia (RBA) has forecast an extended period of stable interest rates, the central bank may be forced to act sooner, rather than later.

The bad news could see consumers tighten their purse strings, plunging Australia’s retail sector back into the doldrums, and affecting everyone from department store retailers David Jones Limited (ASX: DJS) and Myer Holdings Ltd (ASX: MYR) to clothing and electrical retailers like Kathmandu Holdings Ltd (ASX: KMD) and Dick Smith Holdings Ltd (ASX: DSH).

One retailer that may benefit is Reject Shop Ltd (ASX: TRS), with its ‘cheap and cheerful’ products.

Of course the RBA faces a dilemma in that any more rate cuts could see property prices spike even further – and it would definitely be bad news for term deposit holders. Another reason why investors should consider high-yielding companies – such as this one…

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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