Retail prices that American consumers pay for jewelry continued to rise in July, according to the latest data from the U.S. Department of Labor’s Bureau of Labor Statistics. Meanwhile, jewelry prices at the producer level were up only modestly in July.

 

• Jewelry Producer Prices +1.7% – Jewelry producer prices rose by 1.7 percent in July 2007, as calculated by the U.S. Bureau of Labor Statistics (BLS). This year-to-year measure compares producer prices for a market basket of jewelry in July 2007 to the same period in 2006. Based on adjusted numbers from earlier months, the current rate of price inflation at the jewelry producer level is running at about the average for this year – between 1.5 percent and 2.0 percent. With uncertainty levels relatively high in the jewelry industry, we believe that many producers have delayed price increases this year. The BLS index would indicate that has occurred in the first half of 2007, after very large price increases in 2006. 
• Jewelry Consumer Prices +4.9% – Jewelry consumer prices rose by 4.9 percent in July 2007 versus the same 31-day period in July 2006, according to the latest statistics from the Bureau of Labor Statistics. Jewelry price inflation has been jumping all over in 2007 – up sharply one month followed by a dizzying decline the following month. When these sharp cycles are smoothed, the bottom line is this: jewelry retail prices have risen by about 5.5-6.0 percent in 2007. While producer price inflation remains moderate, retail jewelers are playing “catch-up” from large producer price increases in 2006.

We believe that retail prices for jewelry may show more moderate gains for the remaining months of 2007 as jewelers lock in their prices for holiday season circulars which are being printed now. For the full year, it is likely that retail prices for jewelry will rise in the 4-5 percent range.

 

Our forecast for total jewelry sales in the U.S. is also in this range for 2007. Thus, we expect unit sales of jewelry to be nearly flat for the year. Among jewelry producers, price increases are expected to remain moderate for the next few months.

 

It is important to note that the BLS revised its historical data for the first several months of 2007 for the jewelry Producer Price Index; it also revised historical data for both 2006 and 2007 for the jewelry Consumer Price Index. While the overall trends were generally unchanged, there were some moderate percentage changes in the year-to-year data comparisons which are reflected on our newly revised graphs (below).

 

July Jewelry Producer Prices Up Modestly

Revised data from the BLS shows that jewelry producer prices have moderated significantly since the beginning of the year. Jewelry producer prices rose by 1.7 percent in July versus the same month a year ago. This was about the same rate of inflation which occurred in June – +1.6 percent.

 

Comparisons to last year were difficult due to the high rate of inflation which occurred at the producer level in 2006. We note that the BLS revised its monthly jewelry producer price inflation index for the first several months of 2007; it did not revise last year’s index numbers; that’s a bit puzzling, but more revisions could occur later this year.

 

The graph below summarizes monthly jewelry producer price inflation since the beginning of 2006. The figures are based on year-to-year comparisons of the BLS jewelry Producer Price Index.

 

U.S. Producer Price Index U.S. Jewelry 2006 - 2007 % Change Year-to-Year Source: BLS

Jewelry Retail Price Inflation Continues to Surge

Retail prices of jewelry have been on a roller coaster ride since last year. They spiked in late 2006, and then moderated in the early spring of 2007. However, in the past two months, jewelry prices at the retail level have surged. For the month of July 2007, retail prices of a market basket of jewelry in the American market surged by 4.9 percent, after a spike to 6.0 percent in June. Both of these price gains are well ahead of much more modest gains this past spring. All comparisons are on a year-to-year basis; that is, July 2007 versus July 2006.

 

Here’s what is more interesting: comparisons this year against June and July 2006 were among the most difficult of the year. Thus, the surge in retail jewelry prices during June and July 2007 were probably very real.

 

We note that the BLS revised its jewelry CPI numbers (actually, it revised data for all retail categories) for both the early months of 2007 as well as for every month of 2006. Even more interesting, the percentage change for the first six months of 2007 did not change; only the base index numbers changed.

 

The graph below summarizes the percentage in retail prices of jewelry and watches by month on a year-to-year basis since 2006. The percent change is based on a comparison to the same month a year ago.

 

U.S. Consumer Price Index for Jewelry U.S. Retail Jewelry & Watch Prices 2006 - 2007 % Change Year-to-Year Source: BLS

 

Forecast: Inflation May Moderate for Jewelry

For the remaining months of 2007, we expect retail jewelry prices to stabilize. There are three reasons for this forecast:

• Inflation at the producer level has been modest, so jewelers are under less pressure to raise prices.
• Most jewelers have already determined the retail prices for the upcoming holiday selling season; their promotional flyers are at the printer, so the prices are already known.
• With relatively soft jewelry sales so far in 2007, we believe jewelers are reluctant to raise retail prices much further.

The American economy appears to be stronger than economists had originally expected. Further, the Fed’s recent action to increase market liquidity will help boost business.

 

We recently raised our jewelry industry sales forecast to +4.2 percent for 2007, with a range of 4.0-4.5 percent. It is likely that we will raise our forecast again in the next couple of months, if the economy shows signs of perking up and consumer spending seems buoyant.