October 04, 2022

Commodity Insight: Return of the lipstick index

Despite inflation running at a 40-year high and prices everywhere on the rise, it seems consumers are suddenly spending money on beauty products.

But big-ticket items such as TVs and appliances are not being purchased. A bright spot in the retail industry is now beauty products and feeling good about yourself.

As reported in “People are spending lots of money on makeup and beauty, and retailers are cashing in” from CNBC: “For retailers, the beauty category has become a rare bright spot as people pull back on spending amid surging inflation. Often seen as an affordable luxury, it is the only discretionary retail category with rising unit sales in the first half of the year, according to The NPD Group, which tracks categories including clothing, tech and toys, as well as beauty products at specialty and department stores.

“’You may not be able to go out to eat out as much, but you can buy yourself a lipstick,’ said Olivia Tong, an analyst for Raymond James.

“Larissa Jensen, a beauty analyst for NPD, called it the return of the ‘lipstick index’ — a term made famous by Leonard Lauder, chairman of the board of Estée Lauder, to explain climbing sales of cosmetics during the recession in the early 2000s.”

I chuckled reading that the “lipstick index” is back in vogue. A few years ago, I wrote about that index and a host of others in a column entitled “Bizarre economic indicators.”

I wrote: Here are some little known, bizarre indicators and the reason why such indexes are followed closely — in no particular order and from businessinsider.com, where I found most of the information.

Men’s Underwear Index: This index theorizes that in times of financial stress, men hang onto their underwear longer before buying new pairs, which in turn causes underwear sales to drop.

Hemline Index: This index perhaps is the most famous of all arcane indexes. Simply put, when the economy is good, hemlines are higher to show off expensive hosiery.

Lipstick Index: When times are tough, women tend to spend a bit more on luxury items.

Haircut Index: A study shows that customers visit salons every six weeks for a haircut, but in bad times every eight weeks.

Dry Cleaning Index: Alan Greenspan, former Fed chairman, stated he looked at dry cleaning sales often. In bad times, he said, people only dry cleaned items that had to be done.

Cardboard Box Index: This indicator is considered a relatively good measure of economic activity because most all nondurable goods are shipped in corrugated containers.

Aspirin Count Theory Index: Theoretically, aspirin production and stock prices are inversely related.

Waffle House Index: From Wikipedia, “the Waffle House Index is an informal metric used by the Federal Emergency Management Agency to determine the impact of a storm and the likely scale of assistance required for disaster recovery. The measure is based on the reputation of the Waffle House restaurant chain for staying open during extreme weather and for reopening quickly, albeit sometimes with a limited menu, after very severe weather events such as tornadoes or hurricanes.”

And, from list25.com, extremely bizarre economic indicators: Skinny Tie Width Indicator, Japanese Haircut Indicator, Buttered Popcorn Index, Happy Meal Indicator, Alligator Population Index, Marine Advertisement Intensity Index, Unclaimed Corpse Indicator, Mosquito Bite Indicator, First Date Indicator, Plastic Surgery Indicator, Baked Bean Sales Indicator, Bike Fatality Rates, Car Salesman Closing Time Indicator, Coupon Redemption Index, Baby Diaper Rash Indicator, Skyscraper Boom Indicator, Speed Contractors Return Calls, New Headquarters Indicator, Year of the Dragon Indicator and The R-Word Index.

My favorite definition of the study of economics comes from Thomas Carlyle, a Victorian historian in the 19th century who coined the phrase “the dismal science.”

Yep, that is what he called it and I love that phrase. So do many others.

However, based on a host of arcane and bizarre economic indicators, does that old-time description about the study of economics hold true today? Is the study of economics dismal?

Not in my view.

After all, at a dinner party, having drinks at a bar, or on a social media platform, think of the fun to be had touting arcane and bizarre economic theories that hold truth in most instances. How fun is that!

For example, the Unclaimed Corpse Indicator should certainly make you think. So should the Alligator Population Index, as well as the Baby Diaper Rash Indicator. The Aspirin Count Theory Index may make sense, but it’s still interesting to talk about.

In the marketplace, everyone from Wall Street to Main Street wants a clue, an edge about the future and where values are headed for stocks, bonds, currencies and commodities.

Economic indicators, arcane, bizarre or well known and highly touted, can give investors and traders a sense of where the economy is moving in the future. As a result, an investment strategy can be plotted and followed carefully.

Do take the time to research various indicators to help with financial strategies, including the arcane and bizarre ones.

But also never forget my two top rules for investing or trading regardless of how excited or depressed an economic indicator appears to be.

Rule No. 1: No one knows for sure what any market will do..

Rule No. 2: Always use a stop.

Leading economic indicators can give investors a sense of where the economy is headed in the future, paving the way for an investment strategy that will fit future market conditions.

Leading indicators are designed to predict changes in the economy, but they are not always accurate so reports should be considered in aggregate, as each has its own flaws and shortcomings.

From Mark T. Unger, technical manager for the Water Quality Association: “Whether it’s a shopping trip or a business trip, the ball field or the sales field, on a golf course or in a business course, we’re all looking for a competitive advantage — there’s nothing better than gaining an advantage over your competitors.”

He is right. It is all about getting an edge, or an advantage.

And that sums up perfectly why keeping an eye open for offbeat economic indicators can make you money. Or, keeping you from losing money.