Are the Lipstick and Beer Indexes Reliable Measures of Consumer Behaviour?

Traditional indicators such as GDP, unemployment rates, and inflation measure an economy’s health and performance. Economists and policymakers commonly use these to gauge a country’s economic growth and stability.

However, there are also more unconventional indicators that can provide insights into consumer behaviour and market trends.

The so-called lipstick and beer indexes—referring to beer and lipstick sales performance—are examples of these alternative measures. Other consumer goods whose sales are typically associated with large-scale economic shifts include ties and nail polish.

Beer, tie, and lipstick sales as barometers of consumer confidence

When the economy is strong, and people feel optimistic, they tend to spend more money on discretionary items such as alcohol. Conversely, during economic downturns, people may cut back on non-essential purchases, decreasing beer sales.

During the COVID-19 pandemic, beer sales were initially affected by lockdowns and social distancing measures. However, one study on alcohol consumption in Australia during the pandemic shows that online sales and deliveries of alcohol increased, with data from the United States reflecting a similar trend.

Tie sales are another unconventional economic indicator. The theory is that when men feel confident and secure in their jobs, they are more likely to dress up and wear ties to work. Thus, an increase in tie sales is sometimes seen as a positive sign for the economy, showing that people are feeling confident about their employment prospects.

However, during the last global financial recession, tie sales picked up as men struggled to find jobs. Wearing business attire (with a tie, of course) helped job hunters project a professional and responsible demeanour, making them appear more employable.

Therefore, using tie sales as an indicator of consumer confidence may no longer apply in all instances, especially post-COVID. With more companies offering flexible work options (including work-from-home or WFH), there’s less of a need to wear ties, so sales may go down rather than up.

Lipstick sales are also considered a useful economic indicator.

The ‘lipstick effect’ is a term used to describe the phenomenon where women buy more affordable luxury items, such as lipstick, during economic downturns. The theory behind this is that when times are tough, people usually cut back on big-ticket purchases but still want to treat themselves to small indulgences.

However, experts noted that although lipstick sales increased during the 1999-2000 recession, it was replaced by nail polish during the 2008-2009 global financial crisis. During this period, lipstick sales went down.

The same trend was observed during the peak of the global pandemic when lipstick sales went down, as everyone was required to wear facemasks, and nail polish sales increased. But as more people got vaccinated and social distancing measures became relaxed, lipstick sales got a much-needed boost, especially since mask-wearing became optional.

 Consumer goods sales as sources of valuable insights

While data from beer, lipstick, tie, and nail polish sales may seem trivial and unreliable, it can still provide valuable insights into consumer behaviour and market trends. It can also be useful in understanding the economy’s performance during upturns and downturns.

At the very least, information on beer, lipstick, tie and nail polish sales can supplement macroeconomic data and give people an inside view of how global economic forces impact consumer behaviour.

This information does not take into account the objectives, financial situation, or needs of any person. To discuss your unique situation, reach out to the Sherlock Wealth financial advice team.

Before making a decision, you should consider whether it is appropriate given your particular objectives, financial situation, and needs.

(Feedsy Exclusive) Source: Matrix Planning Solutions

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