The Lipstick Effect – Uncovering alternative economic indicators

3rd July 2012

Everyone is watching conventional economic indicators for any hint of a lasting improvement in macroeconomic conditions. But what if the answer were not to be found in GDP figures or unemployment statistics? What if lipstick sales are really the answer? Or underwear sales? Or even unclaimed corpses?

The ‘lipstick' theory, for example, suggests that women grow more competitive during times of economic hardship and recognise that they have to work harder to win the hearts of a decreasing pool of economically successful men. It may also be that when life is miserable, a bit of lippy just makes them feel better, but either way, the economic phenomenon has been found to hold good:

"The lipstick effect is the fact that cosmetics manufacturers usually do not struggle during economic recessions. While a majority of non-essential industries get struck hard by recessions or other economic downturns, the cosmetic industry remains largely unaffected. As Hill notes, L'Oréal saw its sales grow 5.3 percent in 2008, the heart of the most recent recession."

This survey of the wackier economic indicators shows that a similar phenomenon can be found in heel height and skirt length.

However, apparently men do not feel the same pressure. This article suggests that men defer underwear purchases at times of hardship: "If cosmetics are the small luxuries of tough times, men's underwear is the opposite: a basic necessity whose purchase can be pushed into the future until more disposable funds are available. FormerFed Chairman Alan Greenspan famously espoused the theory, positing that a downtick in underwear sales can foreshadow an economic downturn." With all those women in short skirts, high heels and lipstick, this seems like a missed opportunity.

Creepier economic indicators include the unclaimed corpse indicator: High funeral costs can deter ‘loved' ones claiming the bodies of their relatives at times of economic hardship. More cheerfully, economic recessions can be a good time for baked beans as people turn to tinned goods to save cash. By the same token, it may also be a good time for air-fresheners.

In 2009, the BBC invited suggestions on new economic indicators – anything that might suggest ‘green shoots' in the economy. Among the suggestions were a ‘skip' index, that showed how many people were undertaking housing projects, or – for the same reason – a scaffolding index. It also highlighted one of the longest-established alternative economic indices – the ‘crane' index: "The idea of a "crane" index is a long-established one – that the number of big ones on the skyline indicates economic activity and confidence."

The confidence of the City of London used to be measured in terms of the champagne drunk in a number of high profile bars. Bankers might be well-advised to do their expensive drinking more quietly these days, but recent figures suggest it may be on the wane anyway.

Most of these indicators are an attempt to get ahead of the official figures. By the time most GDP figures are published, the markets have a pretty clear view of the economic picture. However, at the moment, both the conventional and non-conventional indicators seem to be pointing in the same direction. For example, the ‘cardboard box' indicator: "According to data from the Federal Reserve, production of "paperboard containers"-which includes corrugated cardboard boxes-grew in the second half of 2011 but is down from 2007, pre-recession."

This piece shows the current picture for the US economy on the 10 main economic indicators: The outlook is not rosy. As Logan Mohtashami comments, "we have low taxes, low interest rates, printed trillions to prop up the economy and this is where we are at… our economy doesn't have the fire power."

Whether it's lipstick, hemlines or men's underpants, it seems the picture painted of world economy gives little cause for cheer.


More Mindful Money

Debunking UK economic myths

The end of economics as we know it

The Barclays scandal goes global

To receive our free daily newsletter sign up here.

The Financialist

Leave a Reply

Your email address will not be published. Required fields are marked *