University Park, Pennsylvania (world) — As debate over the current strength of the U.S. economy rises to the forefront of heated political rhetoric in this election year, economists may be turning to an unpredictable but time-tested economic indicator: lipstick.
It was originally coined by the cosmetics giant Estee Lauder in 2001. Lipstick Index The Lipstick Index analyzes sales of lipstick and other cosmetics to show how close the U.S. is to a recession. During economically difficult times, one might assume that purchases of small non-essential items would decline, but the Lipstick Index provides data to the contrary.
“Rather than buying a dress or taking a long weekend away, they were looking for something quick and easy to refresh without spending a lot of money,” says Stephen Lewellen, an assistant professor at Pennsylvania State University’s Smeal College of Business, explaining how Estée Lauder unexpectedly saw a surge in lipstick sales after the September 11 attacks in the midst of the economic downturn. After the longest postwar economic expansion in U.S. history“Lipstick is one of those things.”
Since then, economists have tried to use the lipstick index to estimate the health of the economy, based on the idea that people will cut back on their spending but continue to make small purchases just before a recession.
Economist Juliet B. Scholl wrote in her 1998 book,The Spendthrift American“, portraying women’s purchases of luxury brand cosmetics even during difficult times as a symbol of status and a way to escape harsh realities.
One explanation is that they are looking for affordable luxury, the thrill of shopping at high-end department stores, indulging in fantasies of beauty and sexiness, and buying “hope in a bottle.” Cosmetics are an escape from an otherwise all-too-monotonous daily life.
Juliet B. Scholl, “The Spendthrift American”
During his research, Scholl spoke with Mademoiselle’s then publisher. Condé Nast’s women’s magazine“If you can’t afford a Chanel suit, buy Chanel lipstick and nail polish and upgrade later,” Catherine Viscardi Johnston explained.
But Lewellen said that while the lipstick index is often seen as a leading indicator of the health of the economy, it has an imperfect track record.
From April 2022 to April 2023, lipstick sales in the United States exceeded $551 million. According to StatistaLip gloss and other lip products accounted for another $331 million. Gallup Economic Confidence Index As of June 2022, U.S. adults were the most pessimistic about the economy since 2009, and while that number is slowly rising, in the U.S. Gross domestic product growth It will decline from the third quarter of 2023 onwards, and in the first two quarters of 2022 it only declined by 2% and 0.06%, respectively.
Raw data alone is not always enough to predict economic trends, even if the data underpins the indices economists use as indicators of the economy’s health.
Indicators such as an expanding economy, falling unemployment and slowing inflation from its peak are suggests that the U.S. economy is currently doing well.In May, 36% of Americans felt the economy was the country’s most important issue, and 46% of Americans rated the economy as “bad.” According to Gallup.
Lewellen said the belief that the economy is poor is widespread among Gen Z and millennials due to their personal financial circumstances, but that alone can put the country in a difficult economic situation.
“So awareness is half the battle,” Lewellen said. “If everyone thinks a recession is coming, people will stop spending and it creates a self-fulfilling prophecy.”
So is the US heading for a recession? Lewellen doesn’t think so.
“The good news is [perception] “Typically, that leads to a decline in consumer confidence,” Lewellen added. “And at least so far, we haven’t really seen consumers say that. We’ve seen consumers say, ‘My life is fine.'”
Although cosmetics sales are currently up, Lewellen doesn’t think this is a sign of the recession.
“Consumer sentiment remains strong. It’s trending up across the board. The economy looks very strong,” Lewellen said.
But there are still some aspects of personal finance where economists aren’t yet sure how to interpret it when it comes to judging the economy’s long-term strength.
“The only warning sign for me is not the lipstick sales, it’s actually the delinquencies. More people are falling behind on their credit card payments, more people are falling behind on their car loan payments, which doesn’t bode well for the future of economic growth in general,” Lewellen said. “But we’re just starting to see an increase in delinquencies, so we don’t know if this is a temporary phenomenon or if there’s some kind of statistical shift happening in the way people are paying off their loans.”
While Lewellen doesn’t believe the current situation is pushing the economy towards a recession due to strong consumer sentiment, he does have some tips to help keep your finances recession-proof.
Make a budget and stick to it
Creating a budget can be hard for many people because it’s hard to make ends meet. Lewellen says the best thing to do when creating a budget is to ask yourself, “What are the things I truly must-have and can’t live without?” and “What can I do without for a certain period of time?”
Your budget should take into account all of life’s essential expenses, such as house and car payments, utilities, and groceries.
Consider holding off on expenses that you can do without for a period of time and putting the money you save aside as an emergency fund that you can use in the event of a job loss or economic downturn.
“And if the worst doesn’t happen, we can use that money to do something fun,” Lewellen said.
Create a savings plan
If possible, Lewellen recommends consulting a financial professional or someone who can help you understand where you are in terms of your career, growth and goals.
With these things in mind, you can create a savings plan that will allow you to save money for your long-term future. Even if you can’t save now, planning can help you save more for the future.
Consider changing jobs or careers
Getting fired from a job is often something you can’t control, but you can control whether or not you stay with a company.
If you’re worried about your job security, Lewellen suggests looking at the job market to find another company that may be more stable. You could also consider a different career path where your skills are transferable and you’re less at risk of being affected.
Lewellen said a combination of an individual’s financial situation and their position in the labor market will determine their ability to handle a recession.
