Retail jewelry sales in the U.S. market are expected to increase by 4.1 percent in 2007 to about $65.6 billion. In 2006, U.S. jewelry sales were about $63 billion, and posted an impressive 7 percent gain over the prior year.

 

In 2007, a slowing U.S. economy will weigh heavily on jewelry demand, but jewelry price inflation will offset some of the decline in fundamental demand. IDEX Online Research is expecting that jewelry unit sales will be flat to up very modestly in 2007.

 

The projection of 4.1 percent jewelry sales growth is expected to lag behind the projected gain for all retail categories in 2007; the National Retail Federation is projecting a 4.8 percent retail sales gain for all retail categories, excluding cars, restaurants, and gasoline stations. This disappointing comparison is due to the volatility of jewelry sales in relation to economic cyclicality. Small changes in economic growth typically create much larger changes in jewelry demand.

 

Long term, demand for luxury goods is expected to benefit retail categories such as jewelry. For the next decade, IDEX Online Research is forecasting an average annual jewelry sales gain of 5-6 percent, somewhat above a 4.5-5.0 percent gain which is forecasted for all retail categories. Thus, while the jewelry sales forecast for 2007 calls for a modest gain, the long term outlook remains robust for the industry.

 

2007 To Be Record Year for Jewelry Sales

In 2007, jewelry sales in the U.S. are expected to reach $65.6 billion, a record level, as the graph below illustrates. 

 

Source: IDEX Online Research

 

In the past decade, the jewelry industry has had only one “down” year, 2001, in which sales were below the prior year. During that period, the U.S. economy grew by only 0.8 percent. This year, most forecasters are projecting that U.S. economic growth will cool to a growth rate of 2.7 percent from 2006’s 3.4 percent gain. In 2008, economic growth is forecasted to resume growth, with a 3.4 percent gain projected. Thus, while economic growth is expected to soften in 2007, it should not have a disastrous impact on the jewelry industry.

 
The graph below compares jewelry sales to GDP (Gross Domestic Product). As is clear, when economic growth slows, jewelry sales typically take a dip. On the other hand, when the economy is strong, jewelry sales tend to be particularly robust. While there is not a perfect correlation between GDP and jewelry sales, the correlation is greater than for any other single economic factor, including employment, wage levels, consumer confidence, or any other economic measures usually associated with consumer demand. 

 

Source: U.S. Dept. of Commerce & IDEX Online

 

During 2007, jewelry industry sales are projected to increase by a moderate 4.1 percent, as the graph below illustrates.

 

Source: IDEX Online

While the graph seems to suggest that jewelry industry growth may be slowing, a long term view of the industry reveals that its five-year compounded annual growth rate has been stable in the 4-5 percent range for many years, a trend that is expected to accelerate modestly between now and 2016. Favorable demographics, coupled with consistent economic growth, are expected to fuel continuing demand for luxury goods.

 

Longer term, IDEX Online Research is forecasting that jewelry industry sales will grow by 5-6 percent over the next ten years, with a point estimate of 5.6 percent. This growth rate compares favorably to projected retail sales gains for all categories of about 4.5-5.0 percent over the same period. In other words, jewelry, along with other luxury goods, is expected to post above-average sales growth over the next ten years.

 

Inflation Will Fuel 2007 Jewelry Sales

For the past eight of ten years, the U.S. jewelry industry has experienced deflationary retail pricing. However, in 2006, sharply higher prices for most commodities used in jewelry production, including virtually all precious metals, had an impact on both jewelry producer prices and jewelry retail (consumer) prices.

 

As is typical, there has been a lag between the increase in wholesale jewelry prices and prices in retail stores. While jewelry producer prices appear to have taken a pause from their upward trend in the past month or two, retail jewelry prices have continued to rise, a trend that will continue into 2007.

 

Because of the sharp increase in commodities prices, after a period of relatively flat (or declining) pricing, jewelers throughout the distribution chain appear to be raising prices for two reasons: 1) to cover the real cost increases that occurred in 2005 and 2006; and 2) to try to boost sagging margins which have shown a steady, relentless downtrend over the past twenty years.

 

The graph below illustrates the lag between producer price movement and consumer price movement for jewelry. Clearly, consumer prices for jewelry are headed higher, if retailers are going to be able to maintain margins in the face of higher costs.

 

Source:  U.S. Dept. of Commerce

Caveats
As with any forecast, there are caveats. If consensus economic growth forecasts change, our jewelry sales forecast will also change. One-time events, which historically have had only a short term impact on jewelry demand, could also cause a change in our forecast, especially if a one-time event occurs during one of the three critical sales periods during the year – Valentine’s, Mother’s Day, and Holiday (November-December).

 

IDEX Online Research will continue to monitor and update its forecast on a monthly basis during 2007. The monthly updates to our forecast can be found in the U.S. retail jewelry sales report which is published about the middle of each month.