Underwear: The Economic Indicator
Understanding the behavior of the economy is an overwhelming task. To come to a clearer picture, many analysts, economists, investors, and policymakers will reference economic indicators. These indicators can measure various aspects of the economy, including growth, inflation, and resiliency. Indicators are traditionally understood as leading, lagging, or coincident depending on the timing of their response to broader economic conditions. In this post, we decided to describe a few interesting indicators that you may not have heard of.
From 1987 to 2006, Alan Greenspan served as Chair of the Federal Reserve. He had a particularly unusual way of gauging the health of the economy: looking at the sales of men’s underwear. He theorized that men tend to regularly purchase underwear when times are good but tend not to replace old underwear in times of financial hardship. Therefore, according to the theory, a decrease in men’s underwear sales could signal a recession, while an increase could signal a recovery.
Waffle House has become famous for its ability to remain open 24/7, even during tumultuous times. During extreme weather events, the impact on Waffle House’s ability to operate has been used to measure the severity of hurricanes. This is referred to as the Waffle House Index. Coined by former FEMA director Craig Fugate, the index is divided into three color categories. Green is used when Waffle House is continuing to operate, yellow when they are serving a partial menu or are partially closed, and red when Waffle House is closed. Red on the Waffle House Index would suggest that the natural disaster severely impacted a given area.
NPR’s Planet Money once conducted research that suggested that consumption of champagne can predict average American household income within 90% accuracy a year later. The idea is that Americans tend to buy champagne to celebrate promotions, pay raises, and other achievements linked to economic success. Additionally, people with higher household incomes tend to purchase more champagne. Unbelievably, the research was conducted over a 15-year period and the champagne sales numbers tracked inflation adjusted household income to a near perfect degree.
In times of prosperity or crisis, we can look to indicators as a reflection of the mood and confidence of the public. Not all indicators are conventional or official, and many offer a fascinating insight into the psychology and sociology of economic activity. It is worthwhile to explore and analyze these interesting economic indicators and their implications for society.