Industry Insights: The Latest Jewelry Industry Trends

Posted on November 1, 2022 by Harold Dupuy, FGA Vice President, Strategic Analysis, Stuller, Inc.

This year appears to be heading to a fork in the road. Buoyed by the tailwinds of last year’s record growth and despite all the negative economic news, the first eight months of 2022 delivered sales growth for the entire retail sector, the jewelry industry, and jewelry stores. That’s the good news. But times are changing! RECESSION OR NOT, THE RECOVERY IS OVER! Every time you read or listen to any media outlet, you are sure to hear about the "impending recession.” Yes, we have the highest inflation in 40 years, interest rates have risen with more to come, the highest gasoline prices ever, and your 401K has taken a severe beating. Inflation peaked at 9.1% in June, fell slightly in July to 8.5% (the first decline in 11 months), then 8.3% in August. All are well above the Fed's target rate of 2.0 to 2.5%. The energy sector, a significant contributor, led the increases at 24% (gasoline 44%, fuel oil 75%, utility gas service 31%, electricity 15%). While the food at home rose by 13%, the core inflation rate (less food and energy) increased by 6.3%. The FOMC (Federal Open Market Committee, more commonly referred to as "the Fed") has issued five interest rate increases thus far: .25%, .50%, and three times, hikes of .75%. With two remaining sessions this year (November and December) and no indication of slowing inflation, ex- pect even more increases. Since the Great Depression, more than nine decades ago, fourteen recessions have occurred in the United States. Over this period, the median time between recessions is 4.1 years. The shortest is one year, and the longest is 12 years. The average length of a downturn is ten months, and the “Great Recession” of 2008- 09 was the longest on record lasting for 18 months. The most prolonged period of economic growth recently ended in 2021 when the NBER (National Bureau of Economic Research), the official group that determines a recession, declared April-May 2021 an official recession making it the shortest on record. While the media debates whether we are currently in a recession and the Administration tries redefining what constitutes a recession, one key historical fact emerges that businesses should understand and watch. Every recession in the past 80 years was preceded by an “inverted yield curve” on Treasury bonds. What's an "inverted yield curve?" In regular economic times, the longer the term of a treasury bond, the higher the return (interest paid). When shorter-term bonds provide a higher return than long-term bonds, it's a signal of lacking confidence and a good predictor of an upcoming recession. Utilizing all prior recessions, when the 10-year interest rate paid remains below the 2-year interest rate for at least one quarter, the median time for a recession to begin is 16 months. As of press time, an inverted yield curve (10-year vs. 2-year) has existed for 67 days. Translated, you can get a .50% higher return on the shorter two years than the longer 10-year T-Bill. While this forecasting method is based on the past fourteen recessions, one must realize that each recession has unique characteristics. To look further, Wells Fargo recently published findings on three versions of their proprietary Probit model, which has successfully predicted all recessions since 1980. All three models breached the 50% probability line in Q2 this year with 57%, 59%, and 51% prob- ability of a 2023 recession. As the country approaches a recession, GDP declines, and the unemployment rate increases. These two metrics have an inverse relationship throughout the past eight recessions since WWII. As companies become cautious about their expense structure, hiring reductions begin, layoffs occur, and unemployed workers reduce consumer spending. Almost 70% of the country's GDP depends on consumer spending, which furthers the GDP downturn. We are currently in a paradox. While having the highest inflation rate in 40 years at 8.3%, we also have the lowest unemployment rate in 50 years at 3.7%. The consumer sentiment index, an economic indicator that measures how optimistic consumers feel about their finances and the state of the economy, was at 101 in early 2020 pre-pandemic. It fell to 71.8 during April 2020 lockdown and the latest in August at 58.2, a 17% decline over August 2021. Consumers are not optimistic about the near-term future. The good news is that the consumer sentiment index...

GemWorld articles are accessible by GemGuide members only. To access our archive of articles and get many other great features and benefits, become a member now!

Become a member