Gails Blog

I was browsing around the web the other day when I came upon an article that talked about an economic phenomenon called the “lipstick indicator.” I was intrigued.

According to Investopedia’s dictionary, it’s a term coined by Leonard Lauder, the chairman of Estee Lauder, the cosmetics company. Lauder noticed that when the economy got tough, lipstick sales would go up. Why? Well, it seems that we turn away from big spending to small indulgences; lipstick fit this bill. In fact, in the months following the September 11 terrorist attacks, lipstick sales doubled.

Three sorts of products sell well during tough times: there are your small indulgences, then there are your morale boosters – to make you forget that your investments are down 20% or that you can no longer afford that nifty $400 cell phone. And then there are your inferior goods – the crap people buy so they can keep shopping even though they can’t afford value anymore.

It seems that not shopping would be just too depressing.

Even the Richy Riches are beginning to feel the pinch, it seems. According to a poll by a U.S. marketing company whose clients include retailers in the luxury goods market, there’s been a 20% decline in spending on luxury goods in the second quarter of 2008, and the lowest luxury consumer confidence level in the about five years.

If you’re south of the border and received a piece of the $50 billion stimulus from Mr. Bush, no doubt you’re still spending. Scott Hoyt, senior director of consumer economics at Moody’s Economy.com says that those cheques could spur spending until September, falsely buoying the economy since consumer spending accounts for about 70% of the U.S. economy. In Canada, no one is throwing money at us in an attempt to keep us spending (though $50 BILLION would go a long way to paying down some debt, wouldn’t it?)

If you accept the idea that small indulgences are one way to offset the yuck of a nasty economy, then the next question is what are you going to indulge in, and how often? I’m not a lipstick girl. Couldn’t care less about make-up. Natasha, who does my makeup for the show, has to practically fight me to do my touch-ups.  For me, it’s not coffee either, since I don’t drink the stuff. But lots of other people do. And while it may have been a small indulgence in the past, Richard Bach ruined it for a lot of people.

Ever since Bach equated lattes with waste, the idea of small indulgences has taken on a different meaning. A small latte at $3.74 a pop works out to about $1,000, which is not a SMALL anything. So there are lots of people who won’t do that anymore.

Of course, if coffee doesn’t work we can always turn to football and the Super Bowl effect. Basically, it goes like this: If a team from the AFC wins the Super Bowl, the national economy will do badly. If a team from the NFC wins the Super Bowl, the national economy will do well. There doesn’t seem to be much proof either way, but in many of the years of the Super Bowl being played, it was more or less true.

What are some of the other signals people use? Umemployment, certainly. Inflation? Yup. Gross domestic product as well. How about rubber bands?

What?

The Rubber Band Indicator is this: when the economy is bad, the rubber bands around broccoli bunches at the grocery store are thinner. Hmmm.

How about an increase in the number of laundry lines as people attempt to cut back on their power usage? Or the percentage of gardens given over to growing FOOD instead of flowers? Or the number of people who are cutting back on cable?

So what are your signals that the economy is in the toilet? What changes have you made to the way you’re managing your money? What are your small indulgences? And what will it take for you to believe that the economy has made the turn and is on the mend?