Everyone knows the big market-moving reports, right?
I’m sure you’re well aware you need to have your wits about you on the first Friday of the month. That’s US job numbers day. And crazy things can happen in the currency markets when the reports come out at half past one in the afternoon London time.
And I’m pretty confident you know you should be on your toes when the central banks are announcing interest rate decisions.
Or when key central bank spokesmen are delivering their rhetoric…
(Did you know their formal announcements are usually heavily scripted? It’s during the unprepared, off-the-cuff remarks in the Q&A sessions that they sometimes let their guard drop unintentionally. Sharp institutional traders will act in the blink of an eye over an out-of-place comment that might give an insight to what’s really going on behind the scenes.)
Ever heard of the Lipstick Indicator or Hemline Index?
There’s a whole raft of ‘alternative’ economic indicators market players are using in an attempt to anticipate what might lie ahead for the economy.
In fact, it doesn’t seem to matter if it’s sales of Thai noodles or an increase in the number of cycling injuries… if a correlation with the movement of financial markets can be traced, someone, somewhere, is probably trying to get a head-start by trading it!
Some of these odd indicators do make a bit more sense than others though…
How lipstick can be the warning sign there’s trouble brewing
The reasoning behind the Lipstick indicator, for example, is that women turn to less expensive indulgencies when they’re feeling the pinch. It means an uptick in lipstick sales could be an early indicator of economic hard-times. The idea was put forward by Leonard Lauder (chairman of Estee Lauder) to explain the surge in lipstick sales during the recession of the time.
So if you suddenly notice the cosmetics display at Boots looking a bit sorry for itself it might be telling you conditions out on the ‘mean streets’ are getting tough despite the government’s official line on the economy!
(Of course, it could just be that Christmas is round the corner and people are merrily spending away. Damn! Nothing’s ever straightforward is it?)
And that Hemline Index I mentioned?
Economist George Taylor noticed the length of women’s skirts had a tendency to go up and down in line with the stock market, hence his ‘Hemline Index’ which first got an airing all the way back in 1926.
And sure enough, he watched the short, shapeless, Flapper dresses worn through the roaring twenties give way to a more sombre hemline length after the crash of 1929. I suppose the great depression that followed verified his theory!
And sticking with the clothing theme… in the 1980’s – when ties were a much more common sight around the neck of the busy executive – there was even an economic indicator based on tie width. If the skinny tie was in vogue, it pointed to bullish conditions. But a fondness for the fat tie warned of bad times.
1970’s: oil crisis… three day working week… big wide kipper ties…
Do you think they were onto something?
I’ve just been reading a fascinating article on alternative indicators. If you fancy being able to ‘front-run’ the official economic statistics you might try your hand at following a few of these alternatives yourself…
My top ten alternative economic indicators
- High-Heel Index – here’s another sign we can spot by following ladies fashion. In an economic downturn it’s been said the height of the heel on ladies shoes creeps up as consumers begin to seek escapism through more daring attire.
- Cardboard box leading indicator – this one makes a good bit of sense… a sharp downturn in the use of cardboard points towards a coming recession as less goods are packaged and shipped. Europe’s biggest cardboard producer saw annual profits drop by 50% during the bleak conditions of 2008.
- Men’s underwear index – just in case you were beginning to wonder if I had a bit of a thing for ladies clothes, here’s one for us men. The theory goes in tougher times men tend to make their undies last that bit longer and not buy new. I don’t know about ‘in tougher times’ they only start feeling comfortable once they’re well worn-in, don’t they? Or is that just me?
- Unclaimed corpse indicator – this one’s a bit creepy. When families are tightening their belts would they really leave the bodies of their relatives at the morgue? They’d avoid having to pay the funeral costs but it does sound a bit extreme! In 2009 the US city of Detroit experienced a huge increase in unclaimed bodies – right at the time national unemployment was rising by more than half a million per month.
- Baked Beans sales indicator – watch out for consumers turning to canned goods as a sign things are getting tough. Bakes beans sales increased by 23% in 2009 as people reigned in their spending (do you know anyone that works for Heinz for a bit of inside info on this one?).
- Divorce rates – a recent study showed unhappy couples are more likely to grin and bear it during recessions. And money is the big reason why. Those divorce lawyers do know how to charge! Keep an eye out for reports of declining divorce rates and then start battening down the hatches!
- Swiss watch exports – the bit of bling Southeast Asia’s up and coming entrepreneurs reach for first. Swiss watch export sales can be a good indicator of a healthy Asian economy. I don’t know why they bother though. I had one once. It lost ten minutes of time each week and when I went snorkeling wearing it (supposedly waterproof to 200m) I woke up the next morning to a watch-face full of rust!
- Nappy rash indicator – this is just awful. Research data showed in tough economic conditions disposable nappy sales dropped 9% and nappy rash cream increased 2.8%. Are parents really changing babies’ nappies less often in a bid to save a few pounds?
- ‘Guns V’s Caviar’ Index – despite the name, this one actually measures the global spend on military planes against private jets. It shows the balance between fear of conflict and bullish exuberance among the real movers and shakers in the world.
- Hot waitress (and waiter!) index – have you noticed the new staff at your local watering hole are looking a bit too easy on the eye? The theory goes the worse the economy gets, the hotter the waitresses look! A fall-off in modeling work, or hosting at corporate events, means these bright young things seek alternative employment instead.
There are some really creative ideas there, aren’t there? And if you want to read up on more strange ways of spotting economic shifts, you can check out the full article I’ve been reading. It’s over on Business Insider UK here.
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Be Prepared: Market Moving Data Coming This Week (London Time):
Wednesday 26th November
09:30 GBP GDP
13:30 USD Core durable goods
15:00 USD New home & pending home sales
Thursday 27th November
All day – US holiday (Thanksgiving)
08:55 EUR German unemployment change
11:30 EUR Draghi speaks
Friday 28th November
10:00 EUR CPI
13:00 USD Early close to US equity markets
Monday 1st December
08:55 EUR German Manufacturing PMI
09:30 GBP Manufacturing PMI
15:00 USD ISM Manufacturing PMI
Tuesday 2nd December
09:30 GBP Construction PMI
So I hope you enjoyed our look at those alternative economic indicators. Can you think of any other good ones we can follow? Drop me a line and let me know. Be as creative as you like!
