What Champagne, RVs, And Underwear Can Predict About The Next Recession

Source: Marker, Jennifer Alsever
Photo: Mica Warren

The quirkiest indicators economists are watching — and what they reveal about the state of the U.S. economy

IIt’s the nagging question on every businessperson’s mind: Is a recession on the way? Economists have been busy reading the usual tea leaves — eyeing the yield curve, corporate profits, employment, consumer spending, freight shipping. They’ve also been looking in some mighty strange places.

For years, economists have been hunting for new warning signs of impending economic gloom, including a seemingly odd assortment of goods that Americans are putting in (or leaving out of) their shopping carts. “There are plenty of small things going on that are hints,” says Michael Hicks, an economist at Ball State University.
Here are a few of the quirkier recession “indicators” that economists have been watching — what each reveals, its track record, and what they could predict about the U.S. economy in 2020.

Recreational Vehicle Sales

Why: Economists started watching RV sales after the 1981 recession. The reasoning is that if people are uncertain about their financial future, they tend to hold off on big-ticket purchases like RVs — which can cost between $10,000 and $300,000.

Past performance: Drops in RV shipments to dealers have preceded all three of the most recent recessions.

Current outlook: Not so good. The crystal ball of glamping foretells difficult times ahead. Late last summer, RV sales definitely began their slide, just a few weeks after the start of the Trump trade tariffs, and shipments dropped 20% between 2018 and 2019, down to 216,581.

The Champagne Index

Why: If you’re feeling pretty good about life, you pop the cork and celebrate, right? That’s why many believe the amount of champagne that Americans drink is a predictor for U.S. income the following year. Economists first stumbled upon the connection between the fizzy spirit and the economy after U.S. shipments rose in the mid-1980s, peaking at the end of the decade when the economy was booming. But when the recession hit in 1990 and 1991, shipments tanked.

Past performance: The bubbly has been right 90% of the time.

Current outlook: Things look great. We’re either celebrating good times, or Americans are so drunk we’re forgetting a recession might be around the corner of the liquor store. Last year, champagne sales in the United States were up 2.7% to 23.7 million bottles. And we continued to fill our cups into 2019: Nielsen reports U.S. sales hit $296.6 million, up 4.1% for the 12 months ending in August. We’re also imbibing other carbonated vintages: Sparkling wine sales have climbed 5.4% so far this year to $1.7 billion.

The Lipstick Effect

Why: Estée Lauder first coined the term “the lipstick effect” during the 2000 recession, when sales climbed following the Sept. 11 attacks and the dot-com bust. The logic is that when times get tight, women will ditch big-ticket items, but trade up for small indulgences like a tube of velvety red.

Past performance: The lipstick theory didn’t hold true in the recession of 2008: Sales of lip products dropped 3% during that time.

Current outlook: Many argue the lipstick effect doesn’t necessarily spell the kiss of death anymore. If it did still stand the recession test, then maybe we’ve got good signs: Lipstick sales for the 52 weeks ending in August showed U.S. spending decreased 4.3% to $503.4 million from $525.8 million, according to Nielsen.

The Nail Polish Effect

Why: After lipstick failed as an indicator, some economists started eyeing nail polish. It’s another lower-priced, feel-good product when you’re cutting back on spending. (In other words, women will opt for a $9 bottle of laquer instead of dropping $20 to $50 for a single pedicure or manicure at a salon). The theory is that if nail polish sales go up, then you’re looking at penny-pinching days.

Past performance: During the Great Recession, sales of nail polish increased 65% between 2008 and 2011, as women ditched the salon and painted their nails at home.

Current outlook: It’s looking good. Nielsen reports that U.S. nail polish sales for the last 52 weeks ending in August decreased 2.1% to $591.2 million from $603.8 million.

Cell Phone Repairs

Why: This idea is new, but Hicks suggests that if people are living with broken phones longer, or choosing to fix them instead of buying new ones, it might offer a glimpse into how people are feeling about finances and the future.

Past performance: There’s no data yet.

Current outlook: Not so good. In the past, people hung onto their phones two to three years, according to David Reiff, founder of uBreakiFix, which has 500 phone-repair stores around the country. Now they keep them for four years or more. One recent survey by uBreakiFix revealed that one-third of people who had broken their device in the past 12 months hadn’t bothered to fix it. Only 17% replace it with a new phone.

Men’s Underwear Sales

Why: Alan Greenspan first started talking about men’s underwear sales as a warning sign for an economic downturn in the 1970s. The idea is that undies tend to be the last clothing item men replace — and when money gets tight, they tend to defer buying even more. So when sales dip, it could mean Americans are feeling pinched. That spells trouble.

Past performance: It has a solid track record, which is why Greenspan was so obsessed with it.

Current outlook: Signs are good. Underwear sales — for both women and men — are on the rise and expected to grow 3.5% between 2019 and 2023, according to market research firm Statista. VCs have also poured millions into a variety of new subscription underwear companies.

Cardboard Box Production

Why: Economists have been keeping tabs on the production of cardboard boxes ever since the last recession. More cardboard boxes being shipped suggests that more things are being made and purchased — from electronics to clothing.

Past performance: During the last recession, shipments of cardboard boxes dropped in 2008 and then plummeted the next year.

Current outlook: It’s not great. After six to seven years of modest 1% to 2% growth in shipments of corrugated boxes, we’re starting to see a drop-off occur. Shipments for August 2019 were off, down 3.4% and down 0.7% year-to-date, according to the Fibre Box Association.

So is there a recession coming — or not? With so much conflicting data, in the words of the magic eight ball, “Reply hazy. Ask again later.” Until then, maybe it’s best to just keep watching that yield curve.

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