Confusing Economic Figures Add Muddle to Holiday OutlookNovember 14, 13
In recent months, we have discussed in this column the retail scenarios, including expectations for future sales. Our outlook has been generally cautious, offering data that indicates rising jewelry sales, while pointing out that diamond jewelry sales are losing market share, for example.
We also published our analysis that spending per household on diamond jewelry has slowly edged down over the past decade, and all along we called for increased investment in marketing. Some recently released data is now sending mixed signals about today’s retail market, making it unclear where the season may be heading.
According to positive figures released by the US government, unemployment is decreasing, ostensibly indicating that the US economy is improving. According to the Bureau of Labor Statistics, 204,000 jobs were added in October and unemployment decreased to 7.3 percent.
Housing starts, a leading bellwether economic indicator, are on the rise compared to last year, even though mortgage rates have risen, providing an additional sign that the US economy is in more of a recovery mode.
In addition, the National Retail Federation (NRF) is forecasting that US retailers would see a 3.9 percent increase in sales, and hire an additional 720,000 to 780,000 employees specifically for this holiday season. So far, all is good. The question that remains unanswered is what kind of jobs are they? Retailers usually hire help for the holidays, or in other words, many of these new jobs are temporary.
Further, in many countries, including the US, government employment figures tend to ignore the type of jobs the unemployed have found. Are they full time or part time jobs? What is the salary level of these new jobs, around average or near minimum wage? And of course, are they long-term or temporary jobs?
Correctly the NRF states that “while retailers and businesses are hiring, consumers remain cautious,” which makes their conclusion puzzling, “[W]e remain steadfast in our belief that consumer confidence and spending will improve.” They don’t explain why they are confident if consumers are cautious.
It’s not a far-off thought that the holiday season in general, and for diamond jewelry in particular, will be better than last year. GDP is growing, the stock market is rising, the price of gold is down 24 percent from an average of $1,721 last November to $1,304 today and prices of polished diamonds are steady year-over-year, down just 0.1 percent according to the IDEX Online Polished Diamond Index.
So why are consumers cautious? For many reasons: more people have jobs, but there is uncertainty in the air about the future of these jobs. The S&P 500 is up 28.6 percent year-over-year, but as long as it’s rising, people won’t pull out their money. Legislators in Washington, DC lost much of their credibility in the recent budget wrestling and that, too, takes away confidence in the direction the country is going.
In the affluent arena, proving this point, a recent survey by Unity Marketing found that high-spending consumers with an average annual income of $267,000 are in a “pessimistic mood.” As a result, 28 percent of those surveyed said they would spend less on luxury items this holiday season, compared with 18 percent last year.
Finally, polished diamond wholesalers are reporting that demand is mediocre. Retailers are not rushing to stock up on goods because they, too, are cautious, hesitating before seeing consumers stepping in and purchasing at a good enough volume to justify the outlay of extra goods.
It’s down to the wire. We are already half way through November and just two weeks away from Thanksgiving, the starting shot for the holiday buying rush. The high-end stores, such as Cartier and Tiffany, will likely do well, as they usually do, despite affluents’ stated hesitance. It is the bread and butter items, those set with 1/3rd to 2-carat diamonds, which need to perform well, especially considering the hardships that the manufacturing and wholesale sector went through in the past year. As it looks now, we need to brace for a jarring experience ahead.