The economy is like a swirling cesspool of constantly changing forces. It is multifaceted and brilliantly hued. That’s what makes it so much harder to put a finger on exactly what is going on.
Economic indicators are a genius, if you think about it. On the surface, it’s just an innocuous number. But it is powerful enough to tame a veritable force of nature. It can tell you, at one glance how the economy is doing.
These indicators have been around for centuries, but they have evolved significantly over the years. Some of the most important economic indicators are GDP, consumer price index, unemployment, interest rate and manufacturing output, among others.
But have you heard of the Lipstick Index or the Big Mac Index?
Let’s take a look at some of the most unconventional economic indicators that will blow your mind.
4 Most Unusual Economic Indicators to Watch For
1. The Happy Meal Indicator
The beloved Happy Meal launched by McDonald’s in 1977 in Kansas City, Denver and Phoenix, has slowly reached the far corners of the world. Almost every country has a version of it. Even if we haven’t consumed it in our childhoods, we’re familiar with the concept. The surprise free toy that comes with the kid’s meal — what’s not to love, right?
It seems almost sacrilegious to bring economics into the Happy Meal. But it speaks to a deeper marketing insight. When companies readily splurge on their marketing campaigns and gives out lots of freebies, it means everything is hunky dory.
When the freebies dry out — that’s when you should be worried. It means money is tight, and companies are struggling to hold on to their margins.
2. Men’s Underwear Index
This is one of those items that’s generally a necessity. Men’s underwear is not something that people splurge on. The spending on men’s underwear is more or less constant. It is a stable and consistent demand — not much can rock the boat.
When the demand for men’s underwear starts fluctuating, you should hold tight. If the spending falls, it means there is very little surplus cash in the hands of people — necessities are starting to be compromised. If the spending rises, it means there is so much surplus cash that people are even spending more on men’s underwear.
3. Lipstick Index
This is an interesting one.
Made up by Leonard Lauder, the chairman of the popular makeup company Estee Lauder in 2001, the lipstick index explains an interesting phenomena observed in the early 2000s. Even though this was bang in the middle of the dot-com crash and the impending recession, lipstick sales still rose!
Now, lipstick was considered as a luxury item and it was expected that the demand for lipsticks would fall during a recession.
But it so happened that women actually substituted their myriad makeup items and instead scaled down to only the evergreen lipstick. Lipstick emerged as a makeup stable and claimed necessity status in a bizarre turn of events.
If lipstick sales start to rise suddenly, it means consumers are substituting more expensive products for cheaper ones and discretionary spending is on the downfall.
4. Big Mac Index
This is another parameter that proves just how ubiquitous McDonald’s is. The Big Mac Index distils down the average price level in each country to a single figure — the price of the Big Mac.
One of the advantages of McDonald’s far-reaching tentacles is that their products are available in most countries. Not just that, even their iconic menus retain their base characteristics across different locations. There is a version of the Big Mac in every country.
We can therefore use the price of the Big Mac to calculate the purchasing power parity.
For example, let’s assume the price of a Big Mac in the US is $5, and the price of a Big Mac in China is 20 yuan. The dollar-yuan Big Max exchange rate is 1:4. But the actual dollar-yuan exchange rate is 1:6.91.
This means the yuan is actually undervalued in terms of the dollar.