How Men's Underwear Sales Can Help Forecast Recessions

Economic indicators come in many forms, from stock prices to housing starts. But did you know that men's underwear sales can also be used to predict recessions? It may seem like a joke, but former Federal Reserve Chair Alan Greenspan found that men's underwear sales can offer valuable insights into the overall state of the economy. Here's how, as well as some other very interesting non-traditional economic indicators.

Lagging vs. leading indicators

There are two types of economic indicators: leading and lagging. Lagging indicators, like interest rates, the unemployment rate, and inflation, show us what has already occurred in the economy. These indicators can be compared to using a car's rear view mirror. It shows you where you've been.

On the other hand, leading indicators are trends and patterns that come before economic changes. They are used to forecast the future performance of the economy, like stock market trends and consumer confidence. Think of them as signs you see on the road ahead.

Leading indicators are more valuable than lagging indicators for investors and policymakers, as they offer valuable insight into future events. In order to predict an upcoming recession, three of the most common leading indicators are yield curve inversion, consumer confidence, and manufacturing output.

Currently all three indicators point to a recession, but what about other unique leading indicators?

Men's Underwear Index

Believe it or not, men's underwear sales is a leading economic indicator. The most private garment in the household is arguably men's underpants, as they are rarely seen by anyone. It is often the last item you need to purchase, as men tend to wear them until they are completely worn out.

The sale rates of male underpants are typically stable, but when they do decrease, it indicates that men are prioritizing other expenses over replacing their underpants. This hesitancy to buy something relatively inexpensive has been a reliable indicator that could mean recession.

What is the underwear index telling us now?

Men's underwear sales faced a decline during the 2008-2009 financial crisis and experienced a significant drop in 2020 due to the pandemic-induced recession. This was confirmed by Euromonitor data shared by David Swartz (a senior equity analyst at Morningstar Research Services) and reported by Barron's.

While the dollar sales of men's underwear remained fairly consistent from 2021 to 2022, there was a notable 12% decrease in the number of pairs sold compared to the previous year. Additionally, households with incomes below $50,000 spent considerably less on men's underwear in 2021 compared to 2020.

Even with the decline, men's underwear sales are currently on the rise. However, it's worth noting that sales tend to stagnate in times of economic downturn. The silver lining is that we have not experienced this trend yet.

These are just some of the unique indicators certain economists study to better understand the behavior of consumers and its impact on our economy. Some other quirky indicators are the "lipstick index," "the champagne index," and "the library index." These indicators show that it's too soon to tell whether we should worry about a recession, but they're worth monitoring.

While this indicator may initially seem absurd, men's underwear sales can provide insight into the state of the economy. The correlation between this seemingly trivial item and economic activity has been demonstrated before and is closely tracked by experts today. So, the next time you see an ad for men's briefs, remember that this seemingly small purchase can actually tell us a lot about whether a recession is coming. This is a signal to get your personal finances in order!