Wednesday, April 18, 2012

Economic Growth & Jewelry Sales

Recently I’ve been seeing article discussing China’s slowdown in growth based on first quarter analysis this year. I’ve also seen many articles on a slowdown of jewelry sales in China. Are the two indicators related? It probably doesn’t take a great deal of analysis to determine that when economic growth slows retail sales take a dip too. According to The Wall Street Journal, China’s Growth Slows to 8.1%, Tom Orlik, The Wall St. J., Apr. 13th 2012, at A7, China has missed it growth expectations for the first quarter of 2012. While this may not be any dramatic indicator of doom looming on the horizon, it’s interesting.

China’s economic growth has been the focus of world economic analysis for quite a while. Its growth has been fast and furious and it is definitely a force to contend with and watch. What is interesting is how typical the effects of growth or contraction are working on their economy. Just like any other country in a similar situation China has experience huge economic growth in the past few years. During the recession most of the world was feeling the pinch. When growth diminished, retail sales dropped as consumers held onto every penny. This of course creates a downward spiral and fewer sales which translated into less demand and less demand moved production demand down. When production goes down the need for employees may also take a dive. Hence we see increased unemployment and so on and so forth.

This is interesting because China is now seeing the fruits of its labors. The average wage for a Chinese factory work is on the rise and this gives the population a few extra yuan to spend on all those consumer goods that are being manufactured in their own country.  But as wages go up margins go down and this may restrict expansion which has been such an economic booster for the country. There are already indications that construction, which is “China’s main domestic driver of growth” is slowing. Companies that are dependent on real estate and related projects are already feeling the effects and while not painful, it is something to consider. During the real estate bust in the US many companies and consumer lost a lot and are still feeling the pain. Retail sales took a huge hit when the real estate bubble burst.

So it’s not entirely surprising that a slowdown in China’s construction sector has maybe created a slight slowdown in economic growth and they missed their expected mark. As things slowdown it is only natural that it will affect other economic sectors such as jewelry sales or even stocks. Some of Asia’s largest jewelry companies have seen a decline in their stock values. This is probably just due to an adjustment in the market or just an after effect of reductions in discretionary spending on the part of tourist and visitors. The economy today is truly a world market. Jewelry unfortunately is one of those consumer products that are not considered a necessity and any pull back in economic markets seems to hit this sector first. I will remain optimistic and as the economy slowly builds so will jewelry sales. Jewelry is too pretty of a product to ignore, at least for long.

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