Powers of Predictors

Unusual predictors of the state of the economy

Posted by The FEP team on Jun 12, 2019 12:38:51 PM

Estimated read time: 2-3 minutes
Start rating: *****
Topics: cpdevolve

Falling interest rates and all that gloomy economic talk not filling you with overwhelming, bubbling enthusiasm today? Here are some snippets of markets folklore that might pique your curiosity and cheer you up!

Indicator Comment
Hemline Index Hemlines on women’s dresses and skirts are correlated with economic activity, giving rise (pardon the pun) to miniskirts during periods of strong economic activity and inspiring the appearance of maxis and ankle length skirts during periods of sluggish economic activity
The curse of the new (global) headquarters Apparently, it is a sell signal when the CEO announces a new global headquarters. Could have something to do with the construction of exceptionally tall buildings indicating a future economic crisis
The construction of exceptionally tall buildings According to Andrew Lawrence of Barclay’s Capital and reported in The Economist in March 2011. “From the time the first skyscraper went up – the Equitable Life Building in New York, in 1870 – to the completion of the empire State Building (1931) and the World Trade Centre (1972) in the same city and the Petronas Towers of Kuala Lumpur (1998), great height has usually coincided with big trouble. 
Lipstick Indicator In the wake of the September 11 terrorist attacks in New York, Estee Lauder noted that its lipstick sales had doubled since the attacks. Research on the phenomenon gives some credence to the observation that during economic downturns we still like our indulgences, but rather than spend big, we spend small
The Slab Index During economic downturns we drink beer at home rather than go out to have a drink
Champagne sales We splurge on bubbly when the good times are rolling. Apparently, we move between beer and champagne depending upon consumer expectations for future income
Coca-Cola Index  In African nations the sales of the cola flavoured beverage is highly correlated with economic activity
Skinny tie indicator Coca-Cola Index Men buy ties to give the appearance of working harder during economic downturns. Ties are also slimmer during economic downturns and are brighter when the economy recovers. Test this indicator the next time you binge watch Mad Men or Suits
Cardboard box sales Because non-durable goods are shipped in cardboard boxes, sales of these boxes increase in good times and fall in bad
The Chinese Year of the Dragon One year of (supposed) great prosperity for stock market investors
Tradie interest Try getting a tradie to return your call or turn up to your job during a construction boom; but once the economy turns, most peoples’ experience is that they’re on your doorstep on time and with a smile
Romance novels Sales increase during economic downturns
Latvian Hooker Index During good times, women at the margin can find better jobs and so the number of prostitutes declines and then market forces take hold and the price for your (Latvian) prostitute increases
Appearance of hospitality staff A relative of the Latvian Hooker Index. In tough times, your table server will be more appealing on the eye, whereas during economic booms these same people reportedly leverage their good looks into better paying jobs. Appalling, really, that employers and consumers are swayed in this way?!
Popcorn index To escape reality, we traditionally flock to the cinemas when times are tough. Now that we’re well and truly in the streaming era (goodbye iTunes), could that soon be replaced by a “Netflix Index” or “Prime Video Index” with subscriptions in those services increasing during downturns?

See the full list of outlandish indicators and read more about the predictive power of asset prices in our CPD topic, View from the intersection of Wall Street and Main StreetDownload a course outline

And please let us know on LinkedIn if you have come across other interesting indicators.

While you are here - you may also be interested in our Derivatives and FX CPD | FASEA CPD | RG146 CPD







CPI and interest rate trends are not the only predictors of economic activity according to markets folklore.  We’ve picked some of the most curious from around the world. Do these indicators have predictive powers...

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