There are various ways to examine the economic situation. The most common is to analyze multiple indicators that clearly reflect certain phenomena and synthesize them to infer the current financial situation. However, these indicators often diverge from the economic realities that people actually experience. In such cases, specific indices are expressed in terms of everyday items to make them more relatable. Let’s explore a variety of economic indices related to everyday goods used to gauge the economy.
Hemline Index
The Hemline Index is a long-standing concept. Proposed by economist George Taylor in 1926, it suggests that when the economy is in a downturn, women wear longer skirts. The reasoning is that when the economy struggles, women have less money to spend on stockings, so they prefer long skirts to hide their old stockings. Conversely, during prosperous times, the logic follows that women shorten their skirts to showcase their silk stockings.
Lipstick Effect
Despite widespread economic hardship during the Great Depression of the 1930s in the United States, economists noticed a strange phenomenon: lipstick sales increased. This trend reflects consumer psychology, where people retain their spending habits and satisfaction levels from prosperous times, opting for affordable luxuries like lipstick when their wallets shrink. A similar concept for men is known as the Necktie Effect.
Men’s Underwear Index
If the Hemline Index applies to women, the Men’s Underwear Index is used to assess economic downturns for men. This index gauges economic recessions through changes in men’s underwear sales. It became famous when used by former U.S. Federal Reserve Chairman Alan Greenspan. The theory is that when recessions begin, men reduce spending on items like underwear that are not publicly visible.
Doctor Copper
Doctor Copper refers to using copper prices as an economic forecasting indicator. Copper is less influenced by geopolitical and political factors than oil or gold. It is a leading indicator of the real economy because it is widely used as a material in manufacturing. When copper prices rise, it indicates increased demand and the potential for economic growth. Conversely, falling copper prices signal decreased demand.
Big Mac Index
The Big Mac Index is one of the media’s most widely used economic indicators today. It primarily compares the financial situations of different countries using the price of a McDonald’s Big Mac. As the name suggests, it evaluates the purchasing power and exchange rate levels of various currencies based on the cost of a Big Mac. Based on the purchasing power parity theory, the Big Mac Index calculates appropriate exchange rates between countries.
Fry Attachment Rate
While the fry attachment rate is less frequently used than the Big Mac Index, it remains an important indicator. This metric measures the percentage of customers who order fries with their meals at restaurants. The fry attachment rate increases when the economy slows, and consumer sentiment worsens. As inflation rises, consumers are more likely to seek affordable, fast food and indulge in small luxuries like ordering French fries.
Starbucks Index
The Big Mac Index became a primary economic index because McDonald’s is a global franchise found almost everywhere. Recently, another widely used index is the Starbucks Index. This index assesses the relationship between actual and appropriate exchange rates based on the price of a tall-sized cafe latte at Starbucks. As Starbucks has become a global brand visible in many countries, this term has emerged in discussions of purchasing power parity.
iPhone Index
With the advent of the smartphone era, the iPhone Index has emerged. This index uses the official selling price of the iPhone in different regions to calculate how many days an average person in each country would need to work to afford an iPhone based on the average wage published by national statistical offices. In South Korea, it takes an average of 10.1 days of work to buy an iPhone 15 Pro, ranking as the 16th shortest in the world. Switzerland has the shortest work time; workers need only 4.2 days to purchase the same device.
IKEA Index
IKEA, a global success story, also provides indicators for analysis. Similar to the Big Mac Index, the IKEA Index compares prices of bookshelves or beds sold at IKEA stores worldwide to assess the cost of living in different countries. For instance, the price of the famous BILLY bookcase allows for a comparison of living costs across 11 countries.
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