The United States is set to become an even more dominant market for the diamond industry in 2015. In a reversal of trends that have characterized the industry in the past few years, there has been a shift back from east to west as industry growth is being supported by stability in the U.S.
Last year was hardly a stellar year for the diamond trade. Profit margins tightened and polished prices fell with the RapNet Diamond Index (RAPI™) for 1-carat laboratory-graded diamonds declining 8.7 percent in 2014 (see the recently published Rapaport Monthly Report – January 2015). One shudders to think how far polished prices might have dropped if it wasn’t for U.S. demand.
In that context, diamond market trends in 2014 were more influenced by the slowdown in China. Jewelry retailers there had built up inventory in anticipation of continued fast-paced growth that didn’t materialize. A Reuters poll of 31 economists published this week suggested that China’s gross domestic product (GDP) is projected to have grown by 7.2 percent in the fourth quarter of 2014, which would be its weakest rate of expansion since the first quarter of 2009.
While most countries can only dream of 7 percent growth, the numbers are viewed in the context of the double-digit growth experienced in the preceding decade. The pullback was inevitable given that China is in a necessary transition phase as the economy matures. The government of Xi Jinping has embarked to transform the economy to being consumption-driven rather than one fueled by government investment and infrastructure projects.
The inevitable slowdown during this transition has resulted in indigestion within consumer-related industries such as the diamond and jewelry market – and certainly within the trade – that is expected to continue through 2015. Furthermore, the government’s anti-corruption campaign to curb excessive displays of luxury wealth and conspicuous consumption continues to affect luxury demand.
Similarly, India’s growth slowed in the past two years, although things are looking up as sentiment has improved since the May election of Narendra Modi as Prime Minister. Elsewhere, European unemployment remains high and Japan continues to struggle to sustain economic momentum.
[two_third]Therefore, the diamond market continues to look to the U.S. for support, especially as most economic indicators there are currently positive. GDP grew by 5 percent in the third quarter of 2014, according to the government’s most recent report, marking its fastest quarterly growth in 11 years. Fourth quarter data is scheduled for a first draft release on January 30, but forecasts point to growth of around 3 percent during the final three months of the year.[/two_third][one_third_last]
“Therefore, the diamond market continues to look to the U.S. for support, especially as most economic indicators there are currently positive.”
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More importantly, consumer confidence rose in December and continues to be relatively high in January as unemployment has steadied below 6 percent.
That said, feedback about the U.S. Christmas season has been mixed. The latest Commerce Department data signaled a positive start as retail sales rose 0.7 percent in November from a month earlier, which was its strongest gain in eight months. The December retail sales data is scheduled to be released on January 14. Meanwhile, Retail Next, an analytics company, estimated that in-store sales fell by as much as 8 percent during the season, while overall holiday sales probably grew by 3.5 percent to 4 percent perked up by strong online buying.
