By Shawna Kulpa
Call it the tale of two economies.
As we head into the holiday season, the atmosphere surrounding the economy seems to be optimistic, based on recent reports:
• According to the Bureau of Economic Analysis, personal income increased 0.3 percent in September after in-creasing 0.5 percent in August.
• During a recent interview with CNBC, Federal Re-serve Governor Richard Clarida indicated that debt levels (relative to income) are at their lowest in 40 years, wages are increasing, the savings rate has increased, and real consumer spending is growing at a rate of almost 3 percent. “I cannot think of a time when…the U.S. consumer has been in better shape,” he said.
• In October, the National Retail Federation (NRF) indicated that it expects holiday retail sales to increase between 3.8 and 4.2 percent over 2018 to a total of between $727.9 billion and $730.7 billion.
“The U.S. economy is continuing to grow and consumer spending is still the primary engine behind that growth,” said Matthew Shay, NRF president and CEO, who then shifted into a second, less-optimistic tone.
“Nonetheless,” he continued, “there has clearly been a slowdown brought on by considerable uncertainty around issues including trade, interest rates, global risk factors, and political rhetoric. Consumers are in good financial shape and retailers expect a strong holiday season. However, confidence could be eroded by continued deterioration of these and other variables.”
“There are probably very few precedents for this uncertain macroeconomic environment,” added Jack Kleinhenz, NRF chief economist. “There are many moving parts and lots of distractions that make predictions difficult. There is significant economic unease, but current economic data and the recent momentum of the economy show that we can expect a much stronger holiday season than last year. Job growth and higher wages mean there’s more money in families’ pockets, so we see both the willingness and ability to spend this holiday season.”
As shown in Shay’s and Kleinhenz’ comments, most observers see a healthy holiday season ahead, but their forecasts are laden with uncertainties. And what happens after the holiday season? That remains to be seen, but the forecasts aren’t rosy.
• The Consumer Confidence Index decreased marginally in October, following a decline in September. The Index now stands at 125.9. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—declined from 96.8 to 94.9 from September to October.
“Consumer confidence was relatively flat in October, following a decrease in September,” said Lynn Franco, senior director of economic indicators at The Conference Board. “Expectations weakened slightly as consumers expressed some concerns about business conditions and job prospects. However, confidence levels remain high and there are no indications that consumers will curtail their holiday spending.”
• The Congressional Budget Office, in its Update to the Economic Outlook: 2019 to 2029 report, stated that real GDP is projected to grow by 2.3 percent in 2019, but that after this year, consumer spending and purchases of goods and services by federal, state, and local governments are projected to grow at a slower pace. It also noted that annual output is projected to slow—averaging 1.8 percent over the 2020-2023 period.
• Bloomberg Economics is currently forecasting that the U.S. economy will grow 2 percent in 2020, which would be the slowest annual rate of growth since President Trump was elected. In addition, Bloomberg created a model to determine America’s recession odds. It’s currently estimating the chance of a U.S. recession within the next year at 27 percent, which is higher than it was this time last year.
Recession is on the mind of many people these days, especially since the yield curve, which graphically depicts the yields on U.S. Treasury bonds, inverted earlier this year, when short-term bonds had a higher yield than long-term bonds. Many economists point out that such an inverted yield curve has preceded every recession since 1955.
The U.S. is also experiencing the longest economic expansion in its history (123 months and counting), making many worry that the end may be near.
“There’s always the threat of a recession,” says Erich Jacobs, president of the Jewelers Board of Trade in Warwick, Rhode Island. “When we look at recession potential, we’ve been on a [strong economic] run for a long time. Business is cyclical, and that run is going to have to eventually stop.”
This is particularly important for an industry such as jewelry, which relies on consumers’ discretionary spending dollars. When the economy is doing well and consumers are feeling confident, they’re spending those discretionary dollars. But when the economy starts to nosedive and consumers start to feel the financial pinch, those discretionary dollars are more apt to be spent on necessities, if they’re spent at all.
However, while it’s important to monitor economic expectations, business must go on. In this special report, we highlight some of the biggest trends in the jewelry industry, and the ways that businesses can best position themselves to survive and thrive in whatever the new year may bring.