In these modern times of electronic trading and credit default swaps, it sometimes feels hard for the average person to figure out where the economy is going. There are a number of economic indicators that the average person can try to wrap their head around, such as international trade and construction spending. Well, in Alan Greenspan‘s book “The Age of Turbulence”, he talks about a slightly unconventional indicator: The Men’s Underwear Index. Greenspan says that men tend not to replace their underpants when they have a forward impression that trouble is coming. His reasoning is that the sales of such a necessity fluctuate the least among all apparels, so even the slightest change in numbers can be revealing.
So, how accurate is the Men’s Underwear Index (MUI)? I went looking for a publicly traded men’s underwear company and the only one that I could come up with was Hanes. My thought was that stock price should indicate sales success. Below is a comparison of Hanesbrands Inc. vs the S&P 500 vs the Dow Jones.
They appear to be follow similar patterns but I’m not sure if this particular chart shows that Hanes is predicting a move in the market. It looks more like it is moving with the market. How about if we look at their 2011 sales figures. In early Q1 2011, net sales went up 12%. In Q2 2011, net sales went up 14%. How does that compare to unemployment levels? If you look at the below chart, it looks like unemployment has plateaued, but only after sharply increasing.
I get the impression that the Men’s Underwear Index might be an indicator of the consumer’s confidence in the economy but it isn’t a very good one. Maybe economists should stick with something else. 🙂