What is the 'Leading Lipstick Indicator'

Leading Lipstick Indicator is an economic indicator that suggests an increase in sales of small luxuries such as lipstick can indicate an oncoming recession or period of diminished consumer confidence.

BREAKING DOWN 'Leading Lipstick Indicator'

Leading Lipstick Indicator is an economic indicator which suggests that consumers turns to less expensive indulgences, such as lipstick, when they do not feel confident about the economic future.

This indicator, sometimes also called the Lipstick Index, was initially proposed by Leonard Lauder, chairman of Estée Lauder, in the wake of the September 11, 2001 terrorist attacks. Lauder noticed that in the months following the attacks, his company’s lipstick sales doubled. Further research demonstrated that historically, surges in lipstick sales occurred during difficult economic times, revealing the Leading Lipstick Indicator to be a relatively reliable metric for determining consumer confidence.

While the Lipstick Indicator is not an precise measure of whether a recession is looming, it marks a shift in consumer confidence, as consumers, particularly women, will forego more expensive luxury purchases, such as clothing and accessories, in favor of a less expensive product, such as lipstick.

The Lipstick Indicator and Other Markers of Consumer Confidence

Since the advent of market tracking, many people have proposed indicators based on the behavior of consumers to predict market trends. Many personal care products and services often challenge lipstick in the marketplace, leading many analysts to watching their sales figures to determine overall consumer confidence. Nail polish and nail salons, for instance, have experienced booms in recent years, leading to proposals of a nail polish index as a companion to the lipstick index when assessing consumer confidence.

These indicators describe market tendencies and posses limited accuracy, but the remain intriguing ways to look at the ways culture and markets interact.

Other popular indicators include

  • The Hemline Index, first proposed in 1925 by George Taylor, which proposes that skirt hemlines are higher when the economy is performing better, and longer during downturns.
  • The Haircut Index, observed by Paul Mitchell founder John Paul Dejoria, suggests that customers will visit salons for haircuts every six weeks during good economic times, and every eight weeks when consumer confidence drops.
  • The Dry-Cleaning Index, a favorite theory of former Fed Chairman Alan Greenspan, which suggests that when consumer confidence is low, dry cleaning sales figures drop, and resume again when the economy improves.
  • The Men’s Underwear Index, another theory posed by Greenspan, suggesting that a decline in men’s underwear sales indicates a poor overall state of the economy, while an upswing in sales predicts an improving economy.
RELATED TERMS
  1. Lipstick Effect

    The lipstick effect is a theory that spending on small indulgences ...
  2. Men's Underwear Index

    Men’s Underwear Index is an unconventional economic indicator ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy ...
  4. Sports Illustrated Swimsuit Issue ...

    The Sports Illustrated Swimsuit Issue Indicator correlates stock ...
  5. Product Line

    A product line is a group of related products manufactured by ...
  6. Indicator

    Indicators are statistics used to measure current conditions ...
Related Articles
  1. Insights

    Why Consumer Confidence Matters

    As consumer spending is a dominant component of the U.S. economy, how consumers feel about the economy can become self-fulfilling.
  2. Investing

    Ulta Now Wants 20% More Stores Than It Did Before

    Ulta Salon's (NASDAQ: ULTA) growth plans are not just putting lipstick on a pig: This beauty supplier is on fire, with comparable-store sales surging ever higher, which should give pause to ...
  3. Trading

    Trading Around Key Options Indicators

    Learn the key economic indicators to help predict market movement.
  4. Insights

    How To Read The Michigan Consumer Sentiment Index

    The Michigan Consumer Sentiment Index has provided a key leading indicator for investors and economists for decades. This respected index is published monthly from the results of random telephone ...
  5. Investing

    Mattel Stock: 4 Things to Watch (MAT)

    Here are the four leading economic indicators that could affect shares of Mattel Inc. in the next six months, but which ones will have the most impact?
  6. Insights

    5 Factors That Could Send The United States Economy Into A Double-Dip Recession

    A decline in consumer confidence and stock market correction could be enough to sink the economy again.
RELATED FAQS
  1. What are leading, lagging and coincident indicators?

    Leading indicators move ahead of the economic cycle, coincident indicators move with the economy, and lagging indicators ... Read Answer >>
  2. Consumer Confidence Vs. Consumer Sentiment

    Is there any real difference between consumer confidence and consumer sentiment? Read Answer >>
  3. Which economic factors most affect the demand for consumer goods?

    Understand how key economic factors such as inflation, unemployment, interest rates and consumer confidence affect the level ... Read Answer >>
  4. What are some limitations of the consumer price index (CPI)?

    Explore some of the basic limitations of the widely used economic indicator, the consumer price index, or CPI, and examine ... Read Answer >>
  5. What is a common strategy traders implement when using the Money Flow indicator?

    Learn a common trading strategy traders implement with the money flow indicator to identify profitable trade entry and exit ... Read Answer >>
  6. How do I start using technical analysis?

    Technical analysis is a method of analyzing securities by evaluating current and historical price and/or volume activity. ... Read Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    Socially responsible investing looks for investments that are considered socially conscious because of the nature of the ...
  2. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  3. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  4. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  5. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  6. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
Trading Center