- Recessions are notoriously difficult to predict.
- But unemployment rates and inverted yield curves aren't the only way to watch for a recession.
Financial hand-ringing abounds these days as money managers and consumers alike eye a potential recession.
But recessions are notoriously difficult for economists to predict.
Official recession indicators are mounting. Two recession indicators — the inverted yield curve and the SAHM Rule — are flashing red. But earlier this year, financial bigwigs admitted that they got their previous predictions wrong — for now.
But for the less market-inclined money watcher, there are several simpler, stranger signs that could also point to a coming downturn.
Business Insider spoke to financial experts about the weird — and often imperfect — recession indicators they keep an eye out for in times of trouble.
"Few if any of these informal indicators are conclusive on their own, and some may simply signal changes in consumption patterns," said Peter C. Earle, senior economist at the American Institute for Economic Research. "The confluence of many at once, however, can be indicative of a souring macroeconomic trend."
Lipstick sales
The Lipstick Effect is one of the more well-known wacky recession indicators. The rule equates an increase in lipstick sales to a downturn in people's purchasing power, a sign that often points to a recession ahead, Aaliyah Kissick, CEO of Financial Literacy Diaries and a Gen Z money expert, told BI.
Lipstick most often stands in as the titular item in the economic theory, but the rule effectively operates as an example of the substitution effect, positing that as people lose the ability to buy themselves big-ticket luxury items during difficult financial times, they turn toward smaller, more affordable luxury because it represents a "small win," Kissick said.
Along with an uptick in lipstick sales, a sales increase in similarly small items like nail polish could also point to financial troubles, Joe Camberato, CEO of NationalBusinessCapital.com, told BI.
The theory has played out several times throughout history, including ahead of the 2008 recession.
Strippers' tips
Exotic dancers are often among the first group of people to warn of a coming recession, Kissick said, lending credence to another predictive theory: The Stripper Index.
Kissick pointed to strippers' tips as a microcosm for elastic goods. The elasticity of a product refers to how changing prices may or may not trigger changing demand.
Coffee, for example, is an inelastic good. Even as prices rise, people continue to buy it because they just aren't willing to go without it. The fact that caffeine is an addictive substance means people won't change their demand for coffee even in tough economic times.
But where a typical white-collar worker isn't willing to forgo coffee during a recession, he may be more likely to ditch the after-hours entertainment, or he'll tip his performers less, Kissick said.
The theory can more broadly be applied to any service industry that operates with a tipping culture, Earle said.
"As a lot of people in the food service industry have noticed lately, a decrease in restaurant tipping suggests that consumers are reducing discretionary spending — whether because of rising unemployment, the debilitating effect of inflation, or both," he added.
Dating app usage
When people's finances are flourishing, they often engage in romance via in-person activities, going out for dinner and drinks with potential partners who they've met out and about while spending their money, Kissick said.
But when a recession looms, dating apps may see a surplus of users and an uptick in activity as people increasingly rely on the internet to meet new people.
"Dining out is another elastic good and one of the first things to go," Kissick said. "When we're out in public less often, we're less likely to meet our soulmate, so we turn to dating apps."
The New York Times reported in 2009 that online matchmakers were seeing a surge in interest even amid the drudge of the 2008 financial crisis.
Online dating is an inexpensive way to meet people, and unemployed people tend to have more time on their hands, the outlet reported at the time.
Business disputes
Trouble in middle-market paradise may also be a recession indicator, said Michael Platner, a corporate finance attorney and strategist at Lewis Brisbois.
Platner pointed to an uptick in private company insolvencies, partner fights, and business disputes as common recession harbingers. Difficult financial times often require business owners to take decisive action, which can reveal a partner or executive who isn't able to handle the new pressures, extra hours, or less cash, he said.
"In hard times, it's not uncommon for simmering partner issues to come to the top and for one partner to blame the other for not pulling their weight," he told BI.
Law firms are perhaps especially primed to look for business disputes. The International Bar Association wrote last year that "issues can arise or intensify in regard" to a company's workforce during difficult economic times.
Corporate bankruptcies, meanwhile, jumped by 30% from 2022 to 2023, Reuters reported last year.
Men's underwear
The Men's Underwear Index posits that a decline in men's underwear sales indicates budget-tightening on non-visible essentials, potentially pointing to a recession, Earle told BI.
Made famous by former Federal Reserve Chair Alan Greenspan, the theory suggests men stop buying new underwear during difficult financial times because it's a garment most people won't actually see on a day-to-day basis.
The underwear indicator is far from foolproof but has proven true in some past recessions. Men's underwear sales fell in 2008 and 2009, Business Insider previously reported, as well as during the COVID-19 pandemic.
Pawn shop boom
An increase in pawn shop activity can suggest financial strain, as the stores offer desperate people a chance to make some quick cash, Earle said.
Inventory at pawn shops typically balloons during difficult times while sales dip. USA Today reported in March that pawn shops were witnessing a "glut" of inventory, indicating people don't have much cash on hand.
Similarly, rising sales at dollar stores or increased activity at secondhand stores are also signs that consumers are cutting back, Earle said.
Back in 1990, the Los Angeles Times reported that pawnbrokers are traditionally a trustworthy recession predictor. During some historical recessions and depressions, lines have formed outside pawn shops as people seek out loans.