Men's underwear sales can tell us a lot about the economy

You’ve probably heard of the All Ordinaries Index and the Dow Jones Index, but what about the men’s underwear index (MUI)? It might sound silly, but you may want to pay closer attention to it.

MUI proponents say it can predict the start of an economic recovery after a slump. The basic theory goes like this: men’s underwear is a staple item and in normal economic times demand remains stable. In leaner economic times, men are more likely to deem new underwear unnecessary and demand drops.

Once economic conditions improve, demand for men’s underwear tends to go up. So underwear demand can be used as a proxy for measuring discretionary household spending.

The theory uses men’s underwear specifically, as women are more likely to deem new underwear essential while men tend to try to make their jocks last until they are threadbare. Gross.

“Most men perceive underwear as a luxury purchase and tend to reduce spending on these products during periods of economic uncertainty,” a spokesperson from economic research group IBISWorld told the SMH.

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The MUI is not a new theory and has been most notably reported to be used by former US Federal Reserve bank chairman Alan Greenspan, who has been a fan of the economic indicator since the 1990s.

You don’t need an index, underwear-based or otherwise, to know that the world has undergone some harsh economic times over the past two years. The pandemic has caused record job losses and depleted the discretionary savings of millions.

True to the MUI, sales of men’s underwear in Australia dropped during 2020. As lockdown restrictions began to lift in the first half of 2021, underwear sales began to rise again with IBISWorld recording a 17.8 per cent increase in sales.

Theories like the MUI, which substitute a single staple item for a more complex economic process, have been seen before.

One of the first to appear was the so-called ‘hemline index‘ in the 1920s that posited the hemlines of women’s skirts rise and fall with the stock market. The hemline index states that women’s skirt lengths get shorter when the market rises and longer when prices are down.

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In 1986, the ‘Big Mac index’ became a popular way to look at the influence of exchange rates around the world. The theory was initially published by The Economist as a humorous way of examining the personal purchasing power (PPP) of consumers in different countries – and it continues to be published every year.

A Big Mac contains multiple ingredients (bread, beef, cheese, etc) and is commonly sold in all countries. As such, it provides a nearly identical ‘basket of goods’ that can be compared. The item should cost the same everywhere, so regional differences allowed economists to study exchange rate impacts.

In a more recent update, the ‘Apple Index’ or Mac Index (no relation) was used to track economic performance across various markets. Apple products such as the iPhone and iPad are manufactured using identical components, but are sold at vastly different prices around the world.

The theory goes that the better performing the economy, the higher the prices consumers are prepared to pay for the those items. Apple adjusts its prices accordingly, to charge as much as possible for its goods.

The Apple Index has been studied by the Commonwealth Bank as an economic indicator.

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But some economists warn that novelty economic indexes such as the MUI should be taken with a grain of salt as they can be far too simplistic to fully capture the economic situation.

“Like all indices, the undies index is just one simplistic albeit unconventional measure of the economy,” says Jana Bowden, associate professor of marketing at Macquarie University business school.

“Like all measures, it should be treated with curiosity and caution and assessed along with a broader spectrum of traditional economic indicators to get a read on conditions.”

How long has it been since you – or the men in your life – replaced their undies? Do you think that’s a reflection of your current financial situation? Why not share your thoughts in the comments section below?

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Written by Brad Lockyer