Lipstick Index, Hemline Index and More: 5 Strange Economic Indicators to Watch Out for during Inflation

Lipstick Index, Hemline Index and More

Across the world, many countries are feeling the burn of inflation. With the combined effects of the pandemic and the Russia-Ukraine crisis, countries like the United Kingdom, India and the United States have seen a rise in the prices of goods and services. These rising prices not only spell trouble for the general public but also pose a significant challenge to businesses, which now have to find ways to deal with rising raw material costs to avoid losing customers. 

Naturally, knowing the signs of a financial crisis before the high prices set in can help both businesses and the average Joe better prepare for inflation. With that in mind, here is a list of five unconventional economic indicators to watch out for so that you can sail through inflation with ease. 

The lipstick index

In times of economic downturn, people often turn to indulgent items as a way to cope. One example of this is the lipstick index, a phenomenon first coined by American billionaire and the heir to Estée Lauder, Leonard Lauder. This index tracks the sales of makeup, particularly lipsticks, during periods of economic distress. History has shown that the lipstick index has played out on several occasions, with makeup sales surging during the Great Depression between 1929 and 1933 as well as the 2008 recession. 

Today, as the world grapples with the effects of inflation, the Lipstick Index is once again making headlines. During the current inflation period, makeup sales in the U.S. are up 20%, while skincare is increased by 12%, fragrance by 15% and hair care by 28%. While some might see this as a frivolous trend, it is worth noting that the Lipstick Index has historically been a reliable indicator of economic distress.

The buttered popcorn index

Despite economic distress, people tend to turn to movies as an escape, leading to a surge in the film industry. This is where the buttered popcorn index comes into play. This index suggests that when people are going through financial hardship, they try to escape to the world of fiction, leading to an increase in the success of the film industry regardless of the quality of films being put out. 

This index was proven to be accurate when the U.S. box office reported massive success in 2009, a year after the recession had set in. The same is happening this time around, with revenues in the U.S. box office crossing US$1 billion as of June 2022. Similarly, in India, which has its own massive film industry, 2022 is anticipated to be the best year ever for film exhibitors, with box office revenues reaching INR12,515 crore (over US$15 million).

The hemline index

The hemline index is one of the oldest economic indicators in this category. It suggests that the higher the hemlines of women’s skirts and dresses, the healthier the economy. The hemline index was first introduced by American economist George Taylor in the 1920s and has since become a popular, albeit unconventional, economic barometer.

While the correlation between hemlines and the economy is not direct, Taylor’s research implied that when the economy was thriving, women’s skirts would be shorter to show off their hosiery. When the going got rough, skirts would be made longer so that women wouldn’t have to invest in stockings. 

In the roaring twenties, hemlines did rise only to come back down during the Great Depression. Similarly, in 2012 Business Insider measured hemlines during New York Fashion Week and found that they were getting shorter, three years after the 2008 recession. 

Despite the index’s shortcomings, such as the lack of a correlation and being limited to women’s fashion, it has been used by many to gauge the economy’s health. During this inflationary cycle, InStyle magazine declared 2022 as the year of the maxi skirt, with renowned designers such as Chanel and Dior making them a part of their collection. Similarly, social media influencer Emma Chamberlin has popularized the midi skirt by making it a part of her summer uniform. 

The guns to caviar index

The guns to caviar index compares the amount of money spent on fighter jets versus private jets. Through this, it observes the relative anxiety among world governments to the level of elation among the global elite. 

The index was created by Richard Aboulafia of the market analysis firm Teal Group. It has proven to be accurate, particularly during the Cold War period when defense spending far outweighed private jet expenditures. However, as the tensions between the U.S. and the Soviet Union gradually eased up, so too did this ratio, with the global elite now spending record amounts on private jet travel. 

During the current inflation, U.S. companies have spent a record high of US$34 million on private jet travel for their CEOs and chairpersons in 2021. However, there is a potential dark cloud on the horizon: As of January this year, the U.S. has begun working on a flight of F-53 fighter jets, which could cost the country US$1.3 trillion over the course of the jet’s lifetime.

The men’s underwear index

The final indicator to watch out for is the men’s underwear index. This index was created by former Federal Reserve Chairman Alan Greenspan. Greenspan theorized that men’s underwear is a non-luxury item and its sales are usually stable, making any drop in sales a signal of an economic downturn. 

The accuracy of this metric can be proven by that men’s underwear sales went down from 2007-2009, around the time of the 2008 recession, only to regain stability in 2010. More recently, researchers at the location data provider company Unacast studied ‌foot traffic at popular underwear brands Tommy Hilfiger and Calvin Klein between 2019 and 2022, finding a slight downward trend in foot traffic. However, this data might not be entirely helpful particularly due to the two brands selling other products as well and the rise of online shopping. 

Are these indicators accurate?

While these indicators do offer some insight into the health of an economy, they shouldn’t be relied upon solely to inform investment decisions as each index has its own biases and limitations. When discussing the correlation between the hemline index and the popularity of midi and maxi skirts, we cannot overlook that a major trend this year is the micro mini skirt popularized by the designer brand Miu Miu. Similarly, there might be inaccuracies in the buttered popcorn index, given the rise in popularity of streaming services. According to a poll conducted by consumer trend analysis company Civic Science, 56% of Americans who voted said they preferred to stream at home. 

Similar discrepancies could be present in the other indexes as well. Hence, we need to study a particular market in great detail to understand the direction in which the prices are headed and why so when making long-term investment decisions. 

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Header image courtesy of Freepik


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