Dead Bodies & Dancing Dollars: Recession Clues

Join us on this journey as we uncover the hidden stories behind economic indicators, some as unconventional as mosquitoes and first dates.

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Today’s episode - “Red Flags”

Good day! ✋ 

Are you interested in learning about the intriguing and unexpected ways that economic downturns impact various aspects of society? For example, did you know that unclaimed bodies in morgues could be an indicator of economic hardship? This edition will explore the relationship between recessions and unclaimed bodies, delve into unique indicators such as the "Stripper Index" and "Lipstick Index," and examine the reliable 10-2 bond spread.

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First, let’s go to the Morgue!👇️ 

Exploring the Morgues

A fascinating 2020 study analyzing records from Los Angeles County found a strong link between economic hardship and the rates of unclaimed bodies. This relationship, stretching back to 1976, shows fewer family members claiming their deceased relatives during tough financial times. The connection becomes clear if you graph the rates of unclaimed bodies against U.S. recessions. Although the data set is limited, it offers intriguing insights into what is known as the Unclaimed Corpse Index, an unofficial economic indicator suggesting that dead bodies might predict stock market crashes.

One notable example is the Wayne County morgue in Detroit. In 2009, CNN reported that the number of unclaimed bodies had tripled, hitting a record high. A local investigator with over a decade of experience remarked on the unprecedented situation, where even those aware of their deceased loved ones' location couldn't afford the $695 cremation fee. This report came during the second year of the global financial crisis, which triggered one of the worst stock market crashes in nearly a century. The correlation between unclaimed bodies and economic downturns works because it reflects broader consumer spending declines during recessions.

Consumer Spending: Essentials vs. Discretionary

Various factors cause recessions, but all lead to a significant and sustained drop in consumer spending. Businesses earn less, lay off workers, and as more people become unemployed, they have less money to spend. Consumer spending falls into two main categories: essential and discretionary.

• Essential Spending:

  • Housing

  • Utilities

  • Food

• Discretionary Spending:

  • Entertainment

  • Luxury items

  • Dining out

In this discretionary category, we find some of the strangest economic indicators, such as the Stripper Index and the Lipstick Index.

The Stripper Index

Could exotic dancers be better at forecasting economic trends than financial experts? In May 2022, a stripper known on Twitter predicted a recession, citing declining tips at her club. This post sparked significant debate about whether the U.S. was headed for a recession. Three months later, data confirmed that GDP had declined for two consecutive quarters, meeting the technical definition of a recession. The stripper index, a term for using cash tips at strip clubs as an economic indicator, is based on the idea that adult entertainment spending is highly discretionary and one of the first expenses to be cut during financial hardship.

The Urban Institute's analysis of the sex work industry supports this idea, noting revenue declines in five out of seven cities studied from 2003 to 2007. Although largely anecdotal, this indicator shows that when tips decline, it might be an early sign of an economic downturn. However, data from the only publicly traded strip club company, RCI Holdings, showed a revenue fall of 26.8% in 2020, largely attributed to COVID-19 restrictions rather than economic conditions alone.

Lipstick Index: A Recession Proof?

When times are tough, some unexpected spending habits emerge. Leonard Lauder, the chairman of Estée Lauder, observed in 2001 that during recessions, lipstick sales increased while sales of most products declined. This phenomenon, dubbed the Lipstick Index, suggests consumers opt for smaller, affordable luxuries over bigger, costlier items during economic downturns. For instance, following the September 11 attacks, MAC lipstick sales rose by 12% in three weeks, and Borghese cosmetics saw a similar uptick.

However, this index is not infallible. During the 2008 recession, lipstick sales dropped by 6%, and lip gloss sales fell by 14%, contradicting the index. Despite its limitations, the lipstick index remains a fascinating glimpse into consumer behavior during economic stress.

Unusual Indicators: Mosquitoes and First Dates

Some of the most peculiar recession indicators include mosquitoes and first dates.

• Mosquitoes: In 2009, Maricopa County in Arizona reported a 60% increase in the number of pools treated for insects over two years. This spike indicated a rise in vacant homes, a sign of the housing market collapse.

• First Dates: Match.com experienced its best quarter in seven years in late 2008, as economic anxiety and loneliness drove more people to seek companionship online.

The 10-2 Bond Spread: A Reliable Predictor

Amidst the bizarre indicators, one consistently accurate predictor of recessions is the 10-2 bond spread. This measure examines the yield difference between 10-year and 2-year U.S. Treasury bonds. Typically, long-term bonds offer higher yields due to the risk of locking money away for longer. However, when the spread goes negative—meaning short-term bonds yield more than long-term ones—it's a strong recession signal.

Every U.S. recession since the 1970s has been preceded by a negative 10-2 bond spread. This pattern reflects investor behavior, where rising short-term yields suggest expectations of economic slowdown. Though the timing can vary, the spread's inversion reliably predicts recessions, making it a valuable tool for economists and investors.

From unclaimed bodies to lipstick sales and even mosquito treatments, these unusual indicators offer unique insights into economic health. While some, like the stripper and lipstick indexes, are more anecdotal, the 10-2 bond spread provides a robust and reliable forecast. Understanding these diverse indicators gives us a broader perspective on the complex factors influencing economic cycles.

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