The business world loves a good economic indicator. Chief executives, budget planners, small-business owners, and others who must make assumptions about the health and direction of the economy take a keen interest in popular indicators such as consumer confidence, gross domestic product, housing starts, stock prices, employment data, and even the price of gold.

Economic indicators may take on extra significance when the nation is in a recession and anxious for signs of a recovery because the national psyche plays a key role in business cycles. People who are not experiencing any personal financial problems may nonetheless rein in their spending or alter the timing of major purchases when the news is telling them that the national economy is in difficult straits.

Right on the Kisser

When investors and economists anticipate that the economy is approaching a turning point, they may look in some unusual places for early indications of a shift in consumer behavior. After all, someone who can identify a recovery or a downturn before everyone else may gain a competitive advantage. Over the years, this has given rise to a number of odd economic indicators, although some are more valuable as entertainment than as a basis for financial decision making.

Keeneland thoroughbred sales: The epicenter of the world thoroughbred horse market is Keeneland, a horse auctioneer near Lexington, Kentucky. Business columnist Daniel Gross suggested that the prices of thoroughbred race horses at Keeneland might be a good indicator of how the ultra-rich feel about the global economy. Race horses are highly speculative investments. When the rich are feeling their oats, they bid up pony prices. When their appetite for risk declines, so does their willingness to spend big. For example, from 1993 to 2000, a time when the economy was flourishing, Keeneland’s sales rose for eight straight years. But Keeneland’s sales dropped sharply in 2001 and 2002 as the global economy went into recession and the stock market plummeted. Gross receipts for Keeneland’s January 2009 Horses of All Ages Sale were $32.8 million, down from a year earlier.

Lipstick sales: Leonard Lauder (the son of Estee Lauder and chairman of Estee Lauder Companies) found that his lipstick sales increased during tough economic times. He reportedly coined the term “lipstick index” during the 2001 recession, but the idea that cosmetics sales flourish during a tough economy goes back at least to the Great Depression, when cosmetic sales increased by 25%. One theory is that women are more likely to give up expensive luxuries such as designer shoes and handbags before they would consider cutting back on cosmetics (which they consider more essential), and that they may reward their own frugality with less expensive luxuries such as lipstick. In autumn of 2001, during the aftermath of the terrorist attacks on September 11, 2001, lipstick sales increased by 11%. Therefore, according to this theory, when lipstick sales are up, it may be a sign that consumers are feeling negative about the economy, although lipstick sales have increased during prosperous times as well.

Scrap metal sales: This was a favorite of former Federal Reserve Chairman Alan Greenspan. Scrap metal is a significant source of raw material for industrial production. Greenspan believed the market for scrap metal was a leading indicator and that rising prices were an early signal of an economic recovery. Scrap metal prices are down so far in 2009 but remain relatively high compared with historical numbers.

Skirt length theory: According to this one, skirt lengths reflect stock market direction: short skirts reflect an up market; long skirts reflect a down market. The explanation is that short skirts tend to be in vogue during bull markets because consumers are more optimistic and may spend freely, adding to corporate earnings. When confidence wanes and the outlook for stocks is gloomy, the theory goes, hemlines head downward.

Men’s underwear sales: Greenspan once said that he also paid close attention to the sales of men’s underwear. His theory was that when men are feeling truly pinched by a tightening economy, underwear is one of the first purchases they will postpone because almost no one sees a man’s underwear. Therefore, because sales of men’s underwear tend to be fairly level, Greenspan took an interest when sales dipped. Conversely, pent-up demand can cause men’s underwear sales to be among the first signals of an economic recovery, indicating men are confident enough to replace their worn-out underwear.

Cardboard box sales: This indicator is used by some investors to gauge industrial production. An estimated 75% to 80% of all nondurable goods are shipped in cardboard packaging.g When cardboard sales go up, it could be a sign that companies are shipping their goods in greater volume.

It’s important to remember that even though these offbeat indicators may be an interesting diversion, they shouldn’t supplant financial fundamentals and your long-term investment goals. When it comes to your investments, you should rely on a carefully considered strategy, not on whether consumers are wearing old jockey shorts or purchasing more lipstick.