Economic modeling may not seem like a tiktok-friendly subject. But as young people feel a pinch of low wallet growth, the so-called “recession indicators” are sparking conversations among Gen Z. According to Google’s trends, in the summer we looked for “recession indicators.” A glance at Tiktok reveals quite a rare macro prediction. Serious economists may mess with such a theory, but is there any truth behind the hype?
If you’re spending your time online, you may have noticed that the Monster-like gorgeous dolls Labubu Toys is a new essential item and is generally sold for less than 30 euros. You may also have seen minimalist beauty trends take off and replace the biggest designs of certain corners of the internet. In some people’s eyes, a sudden rush of affordable snacks is a bad sign, pointing to financial dissent as consumers cut back on bigger purchases.
But #RecessionIndicators is nothing new. It really takes on a much older theory by Tiktok. Looking back at early noughties, for example, we can see how cosmetic giant Estee Lauder’s Leonard Lauder popularized the so-called “lipstick index.” The reason here is the same. During the recession, Loader claimed that consumers were looking for affordable luxury.
The men’s underwear index, famously seen by former Federal Reserve Head Alan Greenspan, is another similar idea. Greenspan argued that during times of hardship, men are likely to refrain from purchasing new underwear and hugging old boxers. If the economy improves, he said there is a high chance that men will buy replacements.
“The absolute exact thing is when people hit a recession, when they struggle for money, they look for smaller, affordable treats,” said Kathryn Jansson Boyd, professor of consumer psychology at Anglia Ruskin University.
“But these indicators are limited,” she added. This is because looking at certain items can only cover a specific segment of the population. For example, people who are interested in purchasing lipstick.
Still, it’s a smart move for brands to focus on the state of the economy and sell their products accordingly, Jansson Boyd said.
“A lot of brands are so aware of this that it’s why they launch more new ranges with smaller items when things get a little harder in the market,” she said. “It often appeals to a young audience who can become familiar with brandy and be loyal to it at an early age.”
Businesses may also change their advertising technology during periods of financial stress to appeal to consumers in different ways.
And what about the length of the skirt?
Aside from the lipstick index, another “recession index” that gets many airtimes is the Hemline index. The theory, which is said to have been created by economist George Taylor in 1926, suggests that skirts will be shorter during periods of economic prosperity and longer during recessions. One reason? During the economic boom, women are definitely likely to buy gorgeous stockings and want to show off them at least in the early to mid-20th century.
Despite the interests drawn by the theory, it remains a “urban legend,” said Philip Hans Frances, professor of applied econometrics at the Erasmus School of Economics.
Franses, along with student Marjolein Baardwijk, studied an older edition of L’Officiel, a French fashion magazine dating back to the 1920s. Comparing skirt length with data on recession shows that there is no strong correlation between the two.
He told Euronows: “The only thing we can find is that it’s very weak, perhaps some delay effects. So if the economy is doing well now, it could have a small effect on skirt length in three years.” Franses added that the reason for this is unknown, and that it emphasizes that there is no strong correlation.
Regarding unconventional “recession indicators” such as underwear purchases and even music trends, Franses told Euronows that there wasn’t enough data to make a claim rather than anecdotes in general.
The difficulty of bringing a recession
“It’s very important to be careful, let alone predict a recession,” Andrew Kenningham, chief European economist at Capital Economics, told Euronows.
“Even definitions change,” he explained. “In the US, the National Bureau of Economic Research has its own methodology to determine whether a recession has occurred. Most other developed countries do not have any official measures, but the treaty means that two consecutive GDPs constitute a recession.”
However, this approach allows for more slower and milder contractions to be labeled as recession, so there is no ideal indicator.
Other metrics used by economists include monthly business surveys such as the purchase manager survey and EC Economic Sentiment Insector (ESI). Track the level of economic trust between these different groups.
Sebastian Franke, ING’s consumer economist, said another “non-colorful” economic indicator is the inverse yield curve.
βLong-term bond yields are usually higher than short-term, and in the opposite case, this suggests that market participants are expecting lower interest rates in the future.
While there may be some faint truth to Tiktok’s “recession indicators,” it cannot be placed at the same level as these more serious indicators. Instead, they’re what Frances called “Friday afternoon interest” and a bit fun.
“They did this in the Middle Ages,” he told Euronows. “People looked for phenomena and linked meaning to trends.”
In conclusion, #RecessionIndicators is certainly older than Tiktok.