There are some unusual signs that can suggest we’re headed into a recession. Take lipstick or diaper rashes, for instance.
While not as frequently cited as the bond market or household spending, some economists and executives have pointed to such informal indicators as ways of showing that a downturn could be on the horizon.
Of course, nothing is certain. Many have obvious holes in them or might simply reflect a pullback in consumer spending — an ominous sign, but far from a guarantee that a recession is close.
That doesn’t mean they’re any less fascinating to examine.
Here are nine less conventional signs to watch.
Snack index
There’s some evidence that people buy fewer snacks — and other types of food — when a recession hits. One review of studies found that the Great Recession of 2008 reduced the consumption of snacks, as well as other foods from fast food to fresh produce, for instance.
Today, consumers are snacking less, and it may have to do with uncertainty about the future of the economy.
General Mills, the company that makes Chex Mix and Nature Valley granola bars, reported last week that its net sales fell 5% during its third quarter.
It wasn’t just human snacks that took a hit, CEO Jeff Harmening said on the company’s earnings call. General Mills’ sales of pet snacks were also down, he told analysts.
“Our view is that a lot of that has to do with consumer confidence,” Harmening said.
Mini alcohol bottle indicator
A similar theory says that shoppers cut back on alcohol purchases when they’re concerned about finances and the economy. Instead of buying full bottles of booze, they go for the small ones you find on airplanes or in hotel mini-bars, the theory goes.
Brown-Forman, the company behind Jack Daniels whiskey and Herradura tequila, has said that consumers are buying more of the small bottles lately.
“The reason small sizes are doing well is more because of the cyclical inflation and it’s a consumer that’s pinched,” CEO Lawson Whiting said during an earnings call earlier this month.
Lipstick index
The creation of the lipstick index is widely attributed to Leonard Lauder, one of the billionaire heirs to the Estée Lauder cosmetics fortune.
Back in 2001, when the US economy was in the throes of a recession, Lauder noticed that lipstick sales were actually rising, not falling. Lauder’s theory was that lipstick sales and the health of the economy were in inverse proportion to one another — essentially, as the economy got worse, lipstick sales got better.
Lipstick sales at mass retailers were up 11% back when Lauder invented the index; some of the world’s biggest cosmetics brands reported a sales boost in 2008 as the US headed into a recession; and even though high inflation has stayed a constant in the US over the past several months, beauty sales have boomed.
Still, lipstick probably isn’t a reliable recession indicator — there are plenty of times when cosmetics sales have boomed during times of relative economic prosperity — and dipped during downturns.
Underwear index
The men’s underwear index was probably made most famous by former Federal Reserve Chair Alan Greenspan. The theory states that when the economy worsens, men will stop buying new underwear, since it’s a garment most people won’t see on a daily basis. Then, when the economic outlook improves, they’ll start replacing their boxers or briefs again.
It’s not foolproof, but there are instances where Greenspan’s theory was correct. Men’s underwear sales dipped in 2008 and 2009, during the Great Recession, and rose between 2010 and 2015, according to Euromonitor data. US sales of men’s underwear also dipped dramatically in 2020 amid the uncertainty of the pandemic before rebounding in 2021, Bloomberg data shows.
Hemline index
Developed in the 1920s, the hemline index asserts that skirts and dresses get shorter when the economy is doing well and longer during a downturn.
While it might not be a reliable indicator, there are some recent examples.
The mini skirt became trendy in the 1960s while the economy was booming, but when the oil crisis hit in the 1970s, skirts got longer again, as Bloomberg reported. And in early 2022, the ultra-mini skirt, also called the micro mini, was the “it” item before inflation rose and the ankle-length maxi skirt was in vogue.
Cardboard box indicator
The thinking goes that cardboard boxes can act as a barometer for the health of the economy since they play such a crucial role in transporting goods — not just to consumers who buy things online, but to stores and warehouses that receive those goods in bulk.
That means that if demand for cardboard is slowing, consumers are buying less stuff.
This indicator may be more accurate than some of the others, as there’s such a direct correlation between cardboard demand and consumer purchasing. Back in early 2009, as the US was in the midst of a recession, cardboard shipments declined drastically and US cardboard manufacturers’ operating rates dipped as well. A similar trend arose in early 2023: the Fibre Box Association, a trade group that represents the industry, reported that cardboard shipments had fallen 8.4% in the fourth quarter of 2022, the steepest decline since the financial crisis.
Diaper rash indicator
Diapering a baby is a costly endeavor for parents — to the tune of $500 to $900 annually — and during economic hard times, some parents may be forced to ration diapers to save money.
But when you change a baby’s diaper less frequently, there’s a higher chance the baby will develop diaper rash, leading to increased sales of ointment to treat it. The lower diaper sales and higher ointment sales can serve as a clue that the economy is contracting.
There are examples of this indicator coming into play during periods of belt-tightening. The trend began during tough economic times in 2011, when parents cut back on buying diapers or traded down to cheaper brands at the same time that ointment sales rose 8%, The Wall Street Journal reported at the time.
But the index isn’t airtight: the birth rate was declining around the same time, diaper technology improved to show parents whether a diaper was wet or not, and parents had begun potty training earlier in an effort to cut costs, the Journal reported.
The Champagne index
The Champagne index is basically the inverse of the lipstick index: when the economy is bad, people will stop buying as much Champagne and opt for cheaper alcohol instead.
It’s played out before. Prior to the 2008 recession, US sales of Champagne surpassed 23 million bottles, but by 2009, that number had dipped to 12.5 million, according to UC Berkeley’s Business Review.
The index may be more closely tied to societal sentiment more broadly, however, since fewer celebrations means fewer occasions for bubbly. Indeed, Champagne sales dropped 18% by volume in 2020, CIVC, a champagne industry trade group, reported at the time. Then, in 2021, as travel and socializing began to resume, sales of Champagne reached a record high of $5.7 billion, 14% higher than the pre-pandemic record.
The stripper index
Exotic dancers are often among the first group of people to warn of a coming recession, Aaliyah Kissick, CEO of Financial Literacy Diaries and a Gen Z money expert, told BI last year. That lends credence to another predictive theory: The Stripper Index.
Kissick pointed to strippers’ tips as a microcosm for elastic goods. The elasticity of a product refers to how changing prices may or may not trigger changing demand.
Coffee, for example, is an inelastic good. Even as prices rise, people continue to buy it because they just aren’t willing to go without it. The fact that caffeine can be an addictive substance means people won’t change their demand for coffee even in tough economic times.
But where a typical white-collar worker isn’t willing to forgo coffee during a recession, he may be more likely to ditch the after-hours entertainment, or he’ll tip his performers less, Kissick said.
The theory can more broadly be applied to any service industry that operates with a tipping culture, Peter C. Earle, senior economist at the American Institute for Economic Research, told BI last year.
“As a lot of people in the food service industry have noticed lately, a decrease in restaurant tipping suggests that consumers are reducing discretionary spending — whether because of rising unemployment, the debilitating effect of inflation, or both,” he added.
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