Not only can the bond and stock markets signal an economic downturn, but men’s underwear or lipstick can warn investors of impending dangers.
Lately, recession fears are growing. Investors fear that record inflation, military conflict between Russia and Ukraine, and the Federal Reserve’s aggressive plan to raise interest rates could slow economic growth.
The deepening investor insecurity has been reflected in the US government bond market through a phenomenon known as an inverted yield curve. Investors sold short-term bonds instead of longer-term bonds, leading to higher yields on two-year bonds than on 10-year bonds.
However, experts have emphasized that an inverted bond yield curve doesn’t mean the economy is bound to fall into an immediate recession. This illusion can appear two years before the recession hits.
According to CNBC, a host of other economic data could serve as a recession signal, including employment figures and consumer spending. In addition, market watchers also use other unusual measures such as men’s underwear, skirt hem, and lipstick to gauge the health of an economy.
In 1999, the British economist Andrew Lawrence developed the “skyscraper index” measure. This measure links the construction of the world’s tallest buildings to the onset of an economic crisis.
In a 2012 interview, Mr Lawrence said he had analyzed data from the late 1800s and found a correlation between the completion of skyscrapers and financial problems. According to the expert, the culmination of towers tends to “close a boom period in the construction sector”.
A prime example is completing the Chrysler and Empire State buildings in New York City during the Great Depression (1929-1933).
However, the problem is not with the building itself but the “cluster” of already constructed buildings.
At the end of last year, Kuala Lumpur’s Merdeka 118 tower was completed and is the second tallest building globally. New York’s Steinway Tower, the world’s thinnest skyscraper and one of the tallest in the western hemisphere, has also been completed. This could be a sign of an impending recession.
Men’s underwear index
For former Fed Chairman Alan Greenspan, sales of men’s underwear were a significant indicator of a recession.
NPR’s Robert Kruwich reports that in 2008, amid the global financial crisis, Mr Greenspan explained that since underwear is one of the last pieces of clothing men buy, it plays a role as a good indicator of tough times.
The former Fed chair said sales of men’s underwear tend to be pretty stable, but the decline in sales shows that men’s financial situations are so strained that they have decided to pause buying replacement underwear.
The skirt index first appeared in the thesis of economist George Taylor (Wharton School of Business) in the 1920s. He said that the hemline would be shorter when the market is up and longer when the market is down.
The solid economic momentum of the 1920s, the emergence of the knee-length flapper dress, and the appearance of the mini skirt in the 1960s amid reliable financial markets are considered examples.
However, some question the reliability of the hem index.
A study published in 2010 by the Institute of Econometrics, Erasmus School of Economics (Netherlands) collected monthly data on hem lengths from 1921 to 2009.
“Our main finding is that George Taylor’s theory is correct, but with a lag of about three years,” the authors said.
Estee Lauder cosmetics president Leonard Lauder developed the “lipstick index” during the economic downturn in 2001. He suggested that women spend more money on small luxury goods like lipstick to lift their spirits in difficult times.
However, the above theory was not valid during the COVID-19 pandemic in 2020, when global makeup sales plummeted as consumers were restricted from leaving their homes because of the blockade.
Speaking to CNBC, Russ Mold, director of research at consulting firm AJ Bell, said that while investors shouldn’t take these soft economic indicators for granted, they are “always worth watching.”