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RAPAPORT... The diamond industry came to the Las Vegas shows with moderate expectations. In today’s economic climate, moderate expectations should be considered high, since all prospects are viewed with caution.
Therefore, in many ways the shows did not disappoint. The U.S. proved its worth as a source of stability in the market. While India and China have been the growth drivers over the past few years, it is still the U.S. that is the backbone of diamond demand, particularly when developing markets soften.
And soften they have, at least in sentiment. India’s weak rupee, now hovering around 56 to the dollar, has impacted domestic demand. China’s pace of economic growth is slowing as the country transitions from an economy dependent on government spending and exports to one driven by private consumption and investment. Hiccups in both countries’ journeys were inevitable.
For varying reasons, the U.S. is the reliable big brother to other diamond markets. Its maturity ensures that there is someone for everyone to sell to. Most significantly, the economy is consumer driven. People primarily buy diamond jewelry to wear, whereas consumers in China and India place greater emphasis on the investment potential of their jewelry purchase - even as this is changing with the new, modern consumer in those markets.
Thus, the message out of Vegas signaled that U.S. diamond demand is stable, with some segments, like high-end luxury, doing better than others.
Some at the shows suggested that the mood generally improves during an election year as political campaigning brings economic promise, no matter how empty. Others reasoned that while discretionary consumers were less conspicuous in their spending during the recession, sensitive to the plight of their struggling peers, they have shed their “guilt” and started to spend again.
“The high-end consumer did not go away during the recession, but for a time it was almost considered bad manners to buy luxury,” one wholesaler commented to Rapaport News. “That isn’t the case anymore.”
A recent report by Unity Marketing, which monitors luxury spending, stressed that “high earners not rich yet,” or individuals with annual incomes of $100,000 to $249,999, have returned to the luxury space, after being missing in action since the recession began. Indeed, there was positive feedback from the JCK Luxury and Couture shows to reflect this.
Still, the strong trend is for more affordable price points and generic diamond demand at the shows tended toward commercial SI stones. For the same reasons, there is good demand for fancy shapes as price differentials from rounds has increased demand and reduced supply. Cutters were encouraged to manufacture rounds instead of fancies in 2011, creating prevailing shortages of fancies.
Consumers are prepared to compromise on size or quality while design is playing an increasingly important role in the sales pitch. Wholesalers and retailers are scrambling to find their niche to accommodate this development.
U.S. demand for diamonds is therefore segmented with strong high-end and low-end markets, while the majority middle market understandably continues to struggle.
Consumer confidence fell 5.5 percent to a four-month low in May, according to the Conference Board. Consumers were less positive about current business and labor market conditions, and more pessimistic about the short-term outlook. However, they were more upbeat about their income prospects, which should help sustain spending, the Conference Board explained.
Similarly, last Friday’s May jobs report did little to spur confidence. The Labor Department reported that just 69,000 jobs were created during May, the lowest monthly tally this year, as the unemployment rate rose slightly to 8.2 percent. Stock markets fell with the news as the JCK show was opening, perhaps causing some to think twice about their market assessments. Having rallied during the first quarter, the Dow Jones industrial average had a tough month in May shedding 9 percent.
Looking at these numbers the diamond industry takes its cues.
As weaknesses in India and China have started to appear and crises in Europe continue to flow, dealers turned their attention back to the U.S. It was therefore natural that their expectations for Vegas rose. The diamond industry has grown accustomed to mixed messages. While the bombardment of negative news continues to influence market sentiment, business is being done, and this was reflected in Vegas.
Therefore, while suppliers and buyers did not leave Vegas disappointed, the market is not booming. Rather they left with the reminder not to overstate their expectations. In today’s economic environment, moderation may be the new splurge – even in the city of excess.
The writer can be contacted at avi@diamonds.net.
This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.rapnet.com or contact your local Rapaport office.
Copyright © 2012 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.
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