The lipstick effect has become the nail polish effect.

The Recession: Quirky Indicators

Dec 26, 2012 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Economic Humor, Households, Macroeconomic Measurement, Thinking Economically • 362 Views    No Comments

People love to cite the lipstick effect. Named in 2001 by former Estée Lauder CEO Leonard Lauder, the lipstick effect just says that during hard times women enjoy more inexpensive luxuries like lipstick.

But looking at this graph from The Economist, you can see that the lipstick effect does not consistently correlate to good and bad times.

The  Lipstick Effect was not evident during the 2008 recession.

Still though, Mr. Lauder says the effect is really about less expensive luxuries that buoy people during hard times. For recession year 2008, with sales skyrocketing, perhaps nail polish is the new lipstick.

In addition to lipstick and nail polish, for the following 2008 recession indicators, I have don’t have sufficient data, but don’t they make sense?

  • diaper rash cream sales up
  • disposable diaper sales down
  • divorce rates down
  • more adult children moving in with parents
  • rising food truck sales
  • architects billing less
  • men’s underwear sales down (MUI)

Our Bottom Line: Like a rubber band, our spending can be somewhat elastic. During prosperity, for certain goods and services, our spending stretches a lot. Then though, for those same items, when recession hits, we buy much less. Called the income elasticity of demand, when we have noticeable changes in the quantity that we demand because our income drops, our buying behavior creates a recession indicator.

 

Sources and Resources: For lipstick effect and source of graph, here; diaper rash data, here; architecture, here; boomerang generation, here; less divorce, here; food truck sales, here; men’s underwear index, here.

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