Poverty play, a trend in fashion land where expensive fashion houses are starting to focus on selling discarded clothes. Can this trend be explained by the popular 'hemline index'? Philip Hans Franses, Professor of Applied Econometrics at Erasmus School of Economics, studied this index and was asked for his expertise in VRT Radio 1 (17 March 2023).
One of the most famous examples of predicting business cycles via popular culture is by looking at the hemline index. This index claims that the length of women’s skirts negatively correlates with the stock market. Rumour has it that the first person to mention a correlation between skirt length and economic circumstances, was economist George Taylor. This was as early as 1926.
Franses notes that Taylor’s study was based on a very short sample. Namely the late 1920s when the economy wasn’t doing that well. Taylor found that skirts were relatively long in the late 1920s.
Franses' and Baardwijk's study
To test whether there is some validity to this theory, Franses and his then-student Marjolein Baardwijk performed a study using empirical tests after the French fashion magazine L’Officiel digitalised their archives from 1921 on. The researchers coded all the fashion reports and compared it with economic cyclical data from the National Bureau of Economic Research (NBER). Their research showed them that the hemline index is an urban legend: a good story with no real-world value.
Still, the Professor notes you can tentatively conclude from the study that fashion follows the economy with about a three-year gap - that after a couple of years of economic prosperity, skirts got shorter, although even that effect was small. In that respect, you could possibly argue that the long skirts we see now are the result of the dip we experienced during the covid pandemic, but not that those skirt lengths predict a recession.
State of the economy
The Professor suggests that these false economic indicators, such as the hemline index, serve a more serious purpose: to gauge the state of the economy. Official statistical bureaus typically take a significant amount of time to release reports on economic performance, while individuals are interested in current economic conditions. De Nederlandsche Bank employs another effective approach, using internet search data to infer public sentiment towards the economy. Researchers analyse search terms such as inflation, poverty, and job loss to gain insight into people's views on the economy.
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For the full interview by VRT Radio 1, 17 March 2023, click here (interview starts around 1:35:10)