For the month of August 2007, retail jewelry prices eased from prior months. However, suppliers’ jewelry prices went up. If history repeats itself, as it usually does, we can look for higher jewelry prices at retailers soon. The reality is that most jewelers probably won’t risk implementing price increases just as the holiday selling season begins, but come January 1, 2008, look for higher retail jewelry prices.

 

• Jewelry Producer Prices +2.4 percent – Jewelry producer prices rose by 2.4 percent in August 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 August 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 a little above the average for this year; so far, this year’s jewelry producer prices have risen between 1.5 percent and 2.0 percent. Despite uncertainty levels about the key holiday selling season, jewelry suppliers have raised prices in an effort to recoup some of their cost increases this year. We are somewhat surprised at this action, but suppliers’ margins have already been squeezed and there is no room for further tightening.

• Jewelry Consumer Prices +2.1 percent – Jewelry consumer prices rose by a very modest 2.1 percent in August 2007 versus the same period in August 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. There is some evidence that jewelers are concerned that price elasticity for jewelry is rather large; thus, they are relying on reigning in price increases in an effort to boost sales. We don’t see evidence of significant price elasticity. Non-the-less, it is clear that jewelry merchants are holding back on implementing new price increases in front of the holiday selling season.

We believe that retail prices for jewelry will continue to show modest gains for the remaining months of 2007 as jewelers lock in their prices for holiday season circulars. For the full year, it is likely that retail prices for jewelry will rise in the 3-4 percent range. Our forecast for total jewelry sales in the U.S. is now slightly above this range for 2007. Thus, we expect unit sales of jewelry to be up modestly for the year. Among jewelry producers, price increases are expected to remain moderate for the next few months.

 

Jewelry Producer Prices Up In August

After posting a slowing rate of inflation for most of 2007, jewelry producers raised prices during August, according to the Bureau of Labor Statistics. We had expected jewelers to maintain modest price increases, especially with the prevailing attitude of an uncertain holiday season. We are much more confident about the holiday season than jewelry vendors, but it may take time for this confidence to spill over the vendor community. In the meantime, the August price hike is related to passing along higher costs which vendors had absorbed earlier in the 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.

 

Source: BLS

 

Jewelry Retail Price Inflation Continues to Surge

As we noted last month, 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 June and July, jewelry prices at the retail level have surged. For the month of August 2007, retail price gains of a market basket of jewelry in the American market cooled, with a more modest level of inflation. All comparisons are on a year-to-year basis; that is, July 2007 versus July 2006.

 

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.

 

Source: BLS

 

Forecast: Inflation To 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 relative modest, despite the August increase, 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 have been printed, so the prices are already known.
• With relatively soft jewelry sales so far in 2007 at the mass market level, 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 has taken decisive action to keep the U.S. economy from sliding into a full-blown slowdown or recession. 

 

We recently raised our jewelry industry sales forecast to +4.4 percent for 2007, with a range of 4.0-4.5 percent. We plan to maintain this forecast for the near term. While this gain is below last year’s +6.5 percent (revised) gain, it still represents a solid sales increase for jewelers.