Weeks after the 9/11 attacks on the World Trade Center, the U.S. economy was in the throes of a major recession, but lipstick sales at Estée Lauder were hot.
Its MAC factories had to run extra shifts to keep up with demand in the fall of 2001, heir and Chairman Leonard Lauder told the Wall Street Journal at the time.
Lauder's Leading Lipstick Index had predicted a recession in past years and it was right again. According to Lauder, people tend to buy more little luxuries, like high-end cosmetics, when times are tougher. Instead of putting money into big-ticket purchases like home remodeling or a new car, people get themselves small, but luxurious, treats — like a $50 lipstick.
The theory behind the phenomenon says that when the economy is heading into a recession, sales of lipstick and other cosmetics increase as consumers search for affordable “feel-good” products. Squeezed by high inflation and interest rates, consumers are spending on affordable indulgences — and 2023 was a good year for luxury lipstick sales.
While economists and analysts disagree over how accurate the indicator is, Ryan Detrick, chief market strategist at advisory services firm Carson Group, told The Messenger that we shouldn’t discard them entirely. Like surveys, he says they can tell us what people are thinking and feeling — an important factor in the economy given consumer spending's outsize role in U.S. gross domestic product.
Greenspan's Underwear Index
“There really is a disconnect between the soft and hard data. And I think a lot of these more fun and playful indicators are kind of soft data, where we would continue to say you should pay attention to it,” Detrick said. “But we are still focused way more on what the hard data is telling us.”
While the University of Michigan's Consumer Sentiment Index has historically been an accurate predictor of a recession, the Lipstick Index is loosely followed by some top economists — along with other less scientific measures of consumer spending.
It was former Fed Chairman Alan Greenspan who first referenced the “underwear index." A dip in men's underwear sales portends bad things for the U.S. economy — so the theory goes. The thinking is that men buy less new underwear during times of financial hardship because they aren't going out as much, and fewer people are seeing them in their tighty whities.
Phillies World Series Miss
Another favorite among some economists: A World Series win by the Philadelphia Phillies has been loosely correlated with severe economic downturns in the past. (Fortunately for the economy, the Arizona Diamondbacks stole Philly's World Series hopes in Game 7 of the National League Championship Series in October.)
The data from such indices aren't always foolproof. In 2009, on the heels of the Great Recession, lipstick and lip gloss sales declined by 5.3%. Nail polish sales, however, soared by double-digits, rising 14.3% from the previous year, as people shifted from nail salons to at-home application amid economic instability, according to consulting firm Kline Group.
This year, sales of press-on nails have seen drastic growth, and could even surpass nail polish sales for the first time, in a similar shift to at-home beauty regimens at a time when the quality of press-ons have improved greatly in quality and design — and are much more affordable than a salon manicure.
In another sign trouble may be on the horizon, luxe beauty sales grew 15% to $14 billion in the first half of 2023 from the same period the year before. Year-over-year sales in the mass beauty market, including drugstore brands like Maybelline and Revlon, grew by just 9% to $28 billion, according to Circana, formerly IRI and The NPD Group. However, the research firm found that lip color was the fastest-growing segment across all the beauty categories amid higher inflation.
The broader luxury sector outperformed most other retail again this year, with a 36% rise in economic profit, according to McKinsey & Company’s latest State of Fashion report. High-end makeup ended the first nine months of 2023 as the fastest growing category within the prestige market, with sales up 14% over the previous year.
“The beauty industry is hitting the right notes, meeting consumers’ emotional needs through new and existing products, which is especially welcomed at a time when spending power continues to be squeezed,” said Larissa Jensen, beauty industry advisor at Circana.
'Shop Luxury'
Michigan's consumer sentiment survey has been at odds with larger macroeconomic trends this year. In November, for example, consumer sentiment dropped to one of its lowest levels of the year on the heels of an encouragingly flat inflation report from the Bureau of Labor Statistics.
Bucking most top economic predictions, the U.S. economy avoided a much-expected recession this year. In November, the unemployment rate edged down to 3.7% and inflation climbed just 3.1% from a year earlier, a significant slowdown. At the same time, consumers are still spending and set their sights on pricey gifts over the holiday season in a major positive sign of consumer strength.
A Deloitte report in April found that consumers were still splurging much more than economists expected, especially in the U.S. and Canada, where the percentage of respondents who said they’ve recently splurged neared 80%. Deloitte referred to the phenomenon — which took place amid high inflation and generally downbeat consumer sentiment — as the “Bourbon Barometer,” which extends the Lipstick Index to all products that are accessible to consumers and make people feel good.
“Consumers are still looking to shop luxury, they're just changing what types of luxury they're shopping,” said Emily Erkel, co-founder of luxury resale site Le Prix.