Worrying About an Impending Recession? These Unconventional Indicators Will Give You Clues.
Alan Greenspan himself was a firm believer in one of these indicators.
Recession. Stagflation.
These words are coming up more and more often in the mouths of economists and analysts who are more pessimistic than ever. This seems to be reflected in the morale of Americans as 81% of them now believe that America will be in a recession by the end of 2022.
If you've been paying close attention, you've probably already found several classic indicators, such as the inversion of the U.S. short- and long-term yield curve. This has happened recently. Usually, this promises a recession the following year, when short-term rates are higher than long-term rates.
But as always, this is not an absolute rule. There may be exceptions.
While experts will continue to point to the war in Ukraine that seems to be stalling, or the Fed's tightening monetary policy for the next few months, I propose to discover 4 unconventional indicators that usually give clues that a recession is coming.
Skyscraper index
The Skyscraper Index is the brainchild of British economist Andrew Lawrence. He developed this index in 1999. As the name suggests, this economic indicator is based on the construction of skyscrapers. According to the economist, there is a link between the number of skyscrapers in a country and the risk of economic recession.
In a 2012 interview with the Council on Tall Buildings and Urban Habitat, a nonprofit organization, Lawrence said there have been correlations between the completion of the world's tallest buildings and economic crises since the 1800s. The completion of the Chrysler and Empire State buildings in New York City during the Great Depression is an example.
According to Lawrence's theory, the completion of these skyscrapers marked the end of a great building boom. However, the economist added in the interview that we should not look at the height of the buildings, but at the clusters of skyscrapers.
If we apply this theory today, we see that the construction of Merdeka 118, a skyscraper in Kuala Lumpur, was completed in late 2021. It would be the second tallest building in the world. The Steinway Tower in New York, reputed to be the world's thinnest skyscraper and one of the tallest buildings in the Western Hemisphere, was also recently completed.
Men’s underwear index
The men's underwear index is one of the favorite indicators of the legendary Alan Greenspan, the former chairman of the Fed. He was quoted as saying at the time that sales of men's underwear are generally fairly steady, but that a drop in sales indicates that men's financial situation is so tight that they decide to postpone buying new underwear.
I'll leave it to you to judge the pertinence of such an indicator ...
Hemline index
This indicator was created in the 1920s by the economist George Taylor. According to his theory, women wear shorter skirts when the markets rise, and vice versa. Think, for example, of the rise of the knee-length skirt during the "Roaring Twenties" or the popularity of miniskirts in the 1960s.
Even wackier than the men's underwear index, the hemline index has seen its credibility questioned many times in the past decades.
A study published in 2010 by the Erasmus School of Economics Econometric Institute in the Netherlands collected monthly data on hemlines between 1921 and 2009. The result that emerged was as follows:
“The main finding is that the urban legend holds true but with a time lag of about three years.”
Lipstick index
Estee Lauder president Leonard Lauder developed the lipstick index during the economic recession of 2001. He suggested that women would spend more on small luxuries, such as lipstick, to lift their spirits in tough times.
That theory didn't hold during the 2020 coronavirus pandemic when makeup sales plummeted as consumers were forced to stay home during the closures.
Final Thoughts
These various unconventional indicators are ultimately only empirical observations and cannot be used by investors without taking a step back. It can be interesting to monitor them, but only as a complement to more serious indicators that have proven themselves over the past decades.
Now that you have discovered these 4 unconventional indicators, I am sure you will have fun watching them in the future to see if they work in today's world.
Some reading
5 Reasons Why Bitcoin Is More Than Just an Asset. #4: Bitcoin gives security to everyone.
Wanting More Privacy and Anonymity Than Bitcoin Can Give You? 3 Privacy Coins To Consider. An opportunity as an investor as well, as these coins should see a resurgence of interest in the months to come.
Birth of a Bretton Woods III – The Fall of the American Dollar King, the Emergence of Outside Money. With Bitcoin as the future king?
The 6 Characteristics Defining a Real Money in Which Bitcoin Excels. Bitcoin is the hardest money in the world.