TSC 21: Tiffany Blue Box Barometer Looks Bullish

(Editor's Note: The demand for Tiffany's little blue boxes is as significant to the economic recovery as the demand for the cardboard boxes Smurfit-Stone Container(SSCC Quote) makes for corporate America. That's why Tiffany, like Smurfit, is a component of TheStreet.com 21, a new index of 21 companies designed to be a leading indicator of the economy's direction for the rest of the year and beyond. We will profile Tiffany and the rest of the index's components in the coming weeks.

Click here for an introduction to the TheStreet.com 21, and click here for a chart listing the components and their reason for inclusion.)

The outlook for Tiffany(TIF Quote) is a great barometer of consumer sentiment -- if the average consumer is Holly Golightly from Breakfast at Tiffany's.

Make no mistake: The Ms. Golightlies and the rest of the Tiffany clientele represent a vital facet of the economy, and the bursting of the stock market bubble has been rough at the high end. Who can afford those $50,000 rings that were scooped up so freely during the halcyon late 1990s?

That's the question facing the U.S.' biggest luxury jewelry retailer, and in turn the broader economy, in the coming months. Tiffany posted better-than-expected earnings in May, noting a pickup in demand despite challenges ranging from SARS and the Iraq war to uncertainty in its two big markets, the U.S. and Japan. Some Tiffany watchers think the road ahead will be even better as the economy improves and the stimulus from President Bush's tax cuts and the Federal Reserve's easing of interest rates loosen wealthy consumers' purse strings.

"There are good indications that high-end retail is picking up now," said Gary Farber, hedge fund manager at Nightingale & Farber. (Farber holds no position in Tiffany.) "People felt guilty spending money with the country at war. Now that the country's in better shape, the guilt about buying more expensive things diminishes."

The Blue Box Barometer

Gauging the consumer component of the economy has become a tricky endeavor. Consumer confidence numbers have plunged since 1999, yet consumer spending has remained strong -- making the once-essential data point an outdated barometer for consumer spending.

"Don't look at those sentiment indications," said Richard Hastings, chief economist and retail sector analyst at Cyber Business Credit. "I don't think those tell us all that much about consumer liquidity. If you want to know how much consumers can spend right now, look at all the different buckets of money they can dip into."