Lipstick Index – A New Economic Indicator Under Recessions

During the early 2000s recession, the chairman of the board of Estée Lauder, Leonard Lauder, was surprised to notice that the sales of lipsticks under its several brands increased rapidly compared with other cosmetic products produced by the corporation. Considering the financial difficulties people encountered at that time, Lauder believed that small items like lipsticks could serve as substitutes for luxury goods that people could no longer afford. This phenomenon was then named the “Lipstick Index,” and economists began to consider it a new economic indicator.

Applying red lipstick

However, in the most recent recession, lipstick sales seemed to contradict the golden rule of the “Lipstick Index.” According to the report released by market research firm Mintel, lipstick purchases continued to fall since the year 2007. People started to doubt whether the “Lipstick Index” was valid. Was the increase in sales in early 2000s a coincidence? The answer is “No.”


In fact, one of the most famous cosmetic groups, L’Oréal,  saw its sales grow 5.3 percent in 2008, the heart of the most recent recession. This number indicates that beauty market was still active during the economic downturn. What’s interesting is that, as the sales of lipsticks underwent a certain decline, sales of nail decoration goodies like nail polish are up 65% since the first half of 2008, according to market research firm NPD Group. The unpredictable shift had to do with the glut of lipsticks on women’s dressers and their increasing demand for nail beauty. As a result, the “Nail Polish Index” has now become a new indicator of the economy.


How do products like lipsticks and nail polish measure the economy? There are several rationales behind it. First, when people could no longer afford things they used to consume, they simply turned to inferior goods. For example, it might be hard for them to consume big-ticket items like houses, jewelry or autos, but as for inexpensive goods like lipsticks, they could absolutely afford it and enjoy the fun of shopping. After all, even lipsticks of top brands are under $40 nowadays. Second, according to a research conducted by the Texas Christian University, women are more likely to buy beauty products during recessions. This is because women feel more secure with makeup and nicer clothes while their bank account balances are under pressure. They try to compensate themselves with small and affordable indulgence, like lipsticks, perfumes, nail polish and others.

Since the emerging of these unusual indicators, more and more categories were defined as the indicator of future economy. The info graphic showed below lists some weird ways of gauging the economy, including sales of cheap spirits, underwear sales and lower hemlines. Although they are not as authentic as widely recognized indicators like GDP or unemployment rate, they actually provide us with a different view of the economy.


Leisure Time

A good measure of how the economy is doing, or an economic indicator, is what people do in their free time. For this blog post I chose the topic of video games, specifically E3. E3 is one of the biggest video game conferences in the United States where huge companies like Microsoft, Nintendo and Sony make announcements about their new gaming systems.  In today’s economy, video games make money at a much quicker rate movies do. “Grant Theft Auto V, by Rockstar Games  make $800 million in its first 24 hours,” quoted by Anya Kamenetz, a blog post writer from Fast Company. Many people assume Hollywood is the biggest entertainment industry in terms of making money for California. However, video games are the silent winner that many people overlook.

In 2012, Activision, the major video game company that created Call of Duty: Black Ops 2, revealed that it had hit $1 billion dollars in sales in just 15 days. The top grossing movie of all time, “Avatar, took two days longer to earn the same amount” (Kamenetz).

Screen Shot 2014-09-07 at 12.08.08 PM

This graph shows the sales of video games from 2012 compared to the 2013. Looking closely one can see that at their peaks in December, sales from 2012 to 2013 have grown from $3.21 billion to $3.28 billion. Holiday season is the time when children know they can ask for the biggest present from the parents, so naturally the sales of video games in December greatly exceed the sale of video games any other time. If you look again at the graph, the points in the year of 2013 are slightly higher than the points from 2012, a clear economic indicator that the U.S. economy is steadily growing.

A convention that happens every year in the heart of Los Angeles is E3, home to one of the biggest video game, tech, and gadget shows. Polygon, one of the leading American websites online that informs its viewers about video game’s news, culture, and reviews, reported that some 48,000 people attended E3 this year, that’s 1.5% more people within the Los Angeles Conference Center than there was last year, a clear economic indicator that Los Angeles is not doing too bad for itself. Measuring an increase in video game purchases from year to year could be a good economic indicator; however having individuals wait hours in line just to go to a convention to hear when exactly the video games will come out e should reveal that the economy is doing well enough for individuals to sacrifice work time to attend this event.


More simply, people not only have the free time to play video games, but they also have the free time to spend money on tickets to the event. If the economy was not doing so well, individuals  Video gaming is one of the biggest chunks of entertainment-related sales, so naturally using it as an economic indicate whether our economy is progressing or regressing.


Nick Wu