It’s not just bonds and stock markets that could signal an economic downturn.
From the men’s underwear index, to the hemline index, there are many more obsolete economic indicators that may be worth observing.
Recently, the fear of recession is increasing. Investors are increasingly concerned that record-high inflation in the Russia-Ukraine war, and the Federal Reserve’s plans to aggressively raise interest rates, could slow economic growth.
This deeper feeling of discomfort is reflected in the U.S. government bond market, known as the reverse of a yield curve, which historically occurred before the recession. Investors are selling short-term treasuries in favor of long-term government debt, prompting the yield on 2-year bonds to rise above the 10-year rate.
However, economists emphasize that a reversal of bond yields is in no way a guarantee of a recession. Indeed, this index could have risen two years before the onset of the recession.
There are many other economic data that could act as a recession signal, including employment and consumer spending statistics. Market observers have also turned to more unusual measures of economic health.
The so-called “Skyscraper Index” was created in 1999 by British economist Andrew Lawrence. This measure links the construction of the world’s largest building with the onset of the economic crisis.
Lawrence said in an interview with the nonprofit Council on Tall Buildings and Urban Habitat in 2012 that he looked back to the late 1800s and found a link between the completion of the world’s tallest buildings and the economic crisis.
Notable examples include the completion of the Chrysler and Empire State buildings in New York during the Great Depression.
Lawrence explains that the completion of these skyscrapers is “a big building boom that shuts down.” However, he noted that this is not a problem for the tall building itself, but rather when there is a “bunch” of these skyscrapers.
In terms of recently completed skyscrapers, the Kuala Lumpur Merdeka 118 Tower was completed by the end of 2021 and is the second tallest building in the world. The Steinway Tower in New York, said to be the world’s tallest skyscraper and one of the tallest in the Western Hemisphere, has just been completed.
For former Federal Reserve Chairman Alan Greenspan, this is the sale of men’s underwear.
NPR correspondent Robert Krulwich said during the 2008 global financial crisis that Greenspan had made it clear that since underpants were one of the last items in men’s clothing, it was a good indicator of when times were tough.
Greenspan said sales of men’s underpants were fairly consistent, but the decline in sales indicates that men’s finances are so wide that they decide to stop buying replacements.
The “hemline index” appeared behind a thesis by George Taylor, an economist at the Wharton Business School, in the 1920s. The theory is that skirts get shorter when the market is on the rise and in recession.
The economic boom of the 1920s and the advent of knee-length flapper skirts, cited as examples to support this theory with the advent of mini skirts in strong financial conditions in the 1960s.
However, its credibility has often been questioned.
A survey published in 2010 by the Erasmus School of Economics Institute of Economics in the Netherlands, collected monthly data on hemlines between 1921 and 2009.
The authors of the report said, “The main finding is that the urban legend is true but about three years apart.
Estad Lauder chairman Leonard Lauder created the “Lipstick Index” in 2001 amid the economic downturn. He suggested that women would spend more on small luxuries like lipstick as a pick-me-up during difficult times.
This theory did not come true during the Covid-19 epidemic in 2020 when sales of makeup declined due to customers being confined to their homes during the lockdown.
Ras Mold, director of investment research at AJ Bell, told CNBC by telephone that investors should not vaguely rely on these soft economic indicators, they are “always worth keeping an eye on”.
Mold said investors should be a little more concerned when the price of luxury items such as champagne and industry goes “up through the roof” at the same time as stock prices, share buybacks, mergers and acquisitions and loans at the same time.
“It’s a kind of bull market, happy-days-end-eternity-kind behavior that can’t last forever, because it never happens,” he said.
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