Economic Bulletin

RAPAPORT... The Conference Board Consumer Research Center’s rating of chief executive officer (CEO) confidence, based on a survey of approximately 95 CEOs, moved up slightly to 39 compared to 38 in the previous quarter. The last time the rating fell below 38 was in the final quarter of 2000 when it was 31. Lynn DeFranco, director of The Conference Board, noted that CEO’s short-term expectations suggest the slow-growth environment “will exist for the remainder of the year.”

The survey found that less than 7 percent of CEOs believed economic conditions had improved, compared to 3 percent last quarter. In rating their own industries, only 9 percent of business leaders claimed that conditions are better, compared with 14 percent in the first quarter. Twenty-four percent expected the economy to improve in the next six months, a four percent increase from the prior quarter. Regarding profits, 60 percent of executives anticipated increases in the next 12 months, with those engaged in durable goods the most optimistic at 73 percent. Among CEOs who expected profits to increase, 49 percent believed market and demand growth would drive profits up, 23 percent cited price increases as the source and 18 percent thought cost reductions would drive profits.

U.S. Wholesale Inflation Jumps

Wholesale prices in the U.S. rose 9.2 percent in June 2008 from one year ago. The increase was the largest annual bump since 1981. Gasoline and food prices have been skyrocketing and climbed nearly 2 percent in June. Energy prices at the wholesale level rose 6 percent for the month. The government also reported that core inflation, the rate closely monitored by the Federal Reserve Bank, which excludes food and energy, was basically flat, showing only a 0.2 percent increase. In his recent address, Federal Reserve chairman Ben Bernanke stated that U.S. inflation is “too high” and identified price stability as the Reserve’s goal.

U.S. Polished Trade Sets Records

Polished diamond imports and exports hit record highs in the U.S. in the month of May, with polished imports rising 23 percent to $2.3 billion and polished exports increasing 53 percent to $1.3 billion. Both figures represent the highest recorded values to date. Net polished diamond imports fell 1 percent to $1 billion from one year ago. Rough imports during the period rose 16 percent to $88 million and rough exports rose 109 percent to $46 million. Net rough imports fell 22 percent to $42 million. During the first five months of 2008, polished diamond imports rose 17 percent to $8.7 billion and polished exports were up 42 percent to $5.9 billion. Rough imports were flat at $355 million and rough exports fell 11 percent to $190 million.

U.S. Jewelry Prices Grow 9 Percent

The price of jewelry in the U.S. for the month of May rose 9.4 percent compared to one year ago, according to statistics provided by the Bureau of Labor Statistics (BLS). When combining both the watch and jewelry categories, the year-to-year difference was an increase of 8 percent. The U.S. jewelry index stood at 152.41 points in May, down three points from last month. From January to May, the index grew to 151.2, compared to 140.6 points for the same period one year prior. January registered 145.6 points, the lowest level so far this year, while April yielded the highest index at 155.2.
De Beers Posts Solid First Half Results

De Beers reported interim results for the half year ended June 30, 2008. Total sales grew to $3.7 million, a 10 percent gain compared to the same period in 2007. The world’s largest diamond mining company noted “strong growth in EBITDA” (earnings before interest, taxes, depreciation and amortization), showing an increase of 31 percent, which De Beers attributed to expansion projects coming on stream during the period.

Sales of rough diamonds, including those made through joint ventures, rose 10 percent to $3.3 billion. The company stated that demand from its clients enabled the Diamond Trading Company (DTC) to steadily increase prices during the period. However, net earnings fell 10 percent to $316 million on the back of higher finance charges, which doubled to $100 million, and a 66 percent increase in taxation to $231 million.

De Beers’ production fell 4 percent to 24.2 million carats during the six months, “only marginally behind 2007 in spite of energy challenges in southern Africa,” the company stated. During the period, De Beers started production at its Snap Lake Mine in Canada’s Northwest Territories and recovered its first diamonds from the Voorspoed mine in South Africa. Snap Lake officially opened on July 25 and Victor diamond mine, in northeastern Ontario, opened the next day.

De Beers saw its biggest sales growth in its jewelry retail division, De Beers Diamond Jewellers (DBDJ). Although it failed to disclose full figures for DBDJ, the company said sales grew “in the high double digits, driven by the bridal and high-end diamond categories.” DBDJ had expanded to 32 stores worldwide by the end of the reporting period. De Beers also announced plans to launch its Forevermark brand in Hong Kong and China in the fourth quarter of 2008 and in South Africa, Japan, India and Taiwan in the first half of 2009.

Belgium’s Polished Exports Rise

Belgium’s polished diamond exports soared 20 percent to $1.2 billion in June, according to the Antwerp World Diamond Centre (AWDC). Polished imports grew 25 percent to $1.2 billion. Rough imports to the country rose 30 percent to $1.1 billion and rough exports increased 8 percent to $1.2 billion. For the first half of 2008, Belgium’s polished imports grew 24 percent to $6.5 billion, while exports rose 29 percent to $6.4 billion. The country’s rough imports increased 17 percent to $5.9 billion for January through June and rough exports increased 11 percent to $6.3 billion.

Israel’s Polished Imports Sink

Israel’s polished diamond exports fell 30 percent to $235 million in June as shipping to the U.S. slowed after the JCK show in Las Vegas, according to data published by the country’s Ministry of Industry, Trade and Labor. Polished imports rose 34 percent to $470 million for the month. Shmuel Mordechai, Israel’s diamond controller, explained that goods were sent to JCK and returned in large quantities after the show. The nation’s rough diamond imports rose 20 percent to $585 million, while rough exports grew 30 percent to $442 million. For the year to date, Israel’s polished exports rose 6 percent to $3.8 billion and polished imports increased 19 percent to $2.3 billion. Rough imports grew 15 percent to $2.8 billion, while rough exports rose 26 percent to $2.2 billion.

Japan’s Polished Imports Up

Japan’s polished diamond imports rose 1.2 percent to $67 million in May, according to figures compiled by The JClub, Inc. Imports from Belgium increased by 23.6 percent to $18.5 million and imports from Hong Kong and Thailand more than tripled to about $2.8 million each. Meanwhile, imports from India declined 7.1 percent to $27.9 million, while Israel’s decreased 2.7 percent to $8 million. For the year to date, Japan’s polished imports fell 10 percent to $348 million.

Italy’s Jewelry Exports Drop

Italy’s jewelry exports fell during the first quarter of 2008, but two industry groups differed on the extent of the decline. The country’s National Federation of Gold Jewellery Manufacturers (FEDERORAFI) estimated the drop at 10 percent, while Federazione Italiana Dell’Accessorio Moda e Persona (FIAMP) reported that jewelry exports fell 2.7 percent. Both groups agreed that the jewelry sector suffered from an economic slowdown in the U.S., Japan and Europe.

Article from the Rapaport Magazine - August 2008. To subscribe click here.