Share

Lipstick Index

In finance we're taught that when the economic situation tightens, discretionary spending goes down. But that’s not entirely true. Let's look at the Lipstick Index.

As the warning bells of a recession in the U.S. grow louder, we constantly hear about a wide range of indicators, from inverse bond yields to housing prices. But a more counterintuitive index has been making some noise lately and it’s called the Lipstick Index.

The principle behind this index is simple: as consumers tighten their discretionary spending, they still want to make themselves look and feel nice. But with high priced items like designer clothes off the list, people turn to cheaper goods like makeup in order to treat themselves. And up go the sales. Another term for these products is ‘affordable luxuries’.

The Lipstick Index is a relatively new indicator, first coined by Leonard Lauder in 2001 when the U.S. economy was reeling from both terrorist attacks and a tough economy (read more in The Wrap: Bear Market Winners). Leonard noticed lipstick sales had jumped 11% year-on-year, and that the phenomenon had also occurred between 1929 and 1933, the Great Depression.

Like all economic indicators, the Lipstick Index is plenty fallible. During the worst parts of the COVID-19 crash, it failed to deliver. But that can be attributed to the need to wear masks, since fragrance sales skyrocketed 45% year-on-year in 2020.

Right now, the Lipstick Index is flashing again. In Q2 2022, lip product revenue in the U.S. rose by 28%.

Does this mean the U.S. is headed for a recession? Not necessarily. There’s no single indicator that guarantees a recession is coming. Investors need to look at the whole economic package. The Lipstick Index is just an interesting place to start.


Want more?

You know what to do

Insights, trends and company deep dives delivered straight to your inbox.


Stake logo
Over 7,000 5-star reviews
App Store logoGoogle Play logo

Subscribe to our free newsletters

By subscribing, you agree to our Privacy Policy.

Stakeshop Pty Ltd, trading as Stake, ACN 610 105 505, is an authorised representative (Authorised Representative No. 1241398) of Stakeshop AFSL Pty Ltd (Australian Financial Services Licence no. 548196). Stake SMSF Pty Ltd ACN 648 283 532 (‘Stake Super’) is not licensed to provide financial product advice under the Corporations Act. This specifically applies to any financial products which are established if you instruct Stake Super to set up a self managed super fund (‘SMSF’). When you sign up to Stake Super, you are contracting with Stake SMSF Pty Ltd who will assist in the establishment of a SMSF under a ‘no advice model’. You will also be referred to Stakeshop Pty Ltd to enable your trading account and bank account to be set up in order to use the Stake Website and/or App. For more information about SMSFs, see our SMSF Risks page. The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake and Stake Super, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice given by Stake is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Financial Services GuideTerms & ConditionsPrivacy Policy and Disclaimers before deciding to invest on or use Stake or Stake Super. By using our website or service in any way, you agree to our Privacy Policy and Terms & Conditions. All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake and Stake Super are registered trademarks in Australia.

Copyright © 2024 Stake. All rights reserved.