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.

Key Takeaways

  • The leading lipstick indicator refers to an economic indicator which suggests that consumers turn to less economic indulgences, such as lipstick, when they are not confident about the economic future.
  • Analysts have made the case against the lipstick indicator arguing that they increase even during times of prosperity.
  • Other, similar indicators include the Hemline Index and the Haircut Index.

Understanding Leading Lipstick Indicator

Leading Lipstick Indicator is an economic indicator which suggests that consumers turn 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 a 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 Case Against the Lipstick Indicator

While it is true that lipstick sales increase during times of economic recession, analysts are increasingly arguing that the lipstick indicator may have outlived its usefulness.

In 2009, Kline and Company, a market research company, analyzed lipstick sales from 1989 onwards and found that the figure increased even during times of prosperity. Euromonitor, another research firm, has forecast that lipstick sales will increase by 18 percent between now and 2022 even as global economic growth declines and there is talk of recession. Analysts from Mintel found that sales for lipstick actually fell by 3% during the Great Recession while nail care products witnessed an increase in sales during that time. The firm suggests that lipstick sales should be replaced with sales for key categories, such as skin and bodycare, in the beauty industry. Alison Gaither, an analyst with Mintel, said there's loyalty to the industry as a whole but "certain categories have a safety bubble."

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 possess limited accuracy, but 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.