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Men’s Underwear and Recessions: What’s the Connection?

Basing off of my previous blog posts like the Big Mac Index and the Waffle House Index, it’s no secret that I’m quite fascinated with indices. Economics, after all, thrives on the availability of these indices and the potential predictability they provide. The more obscure the economic indicator, the more interesting they are for me.

So, needless to say, my interest was piqued when I read up on the Men’s Underwear Index (MUI). The MUI was first used and made popular by Alan Greenspan, former Federal Reserve Chair who served from 1987 through 2006. His theory rests on the fact that underwear is a basic need, and when economic times are hard and uncertainty is high, replacing and shopping for such “netherwear” becomes less of a priority. Men tend to wait for an economic respite before such purchases are again made. Therefore, when economic recessions are expected, sales for underwear begin to fall.

I think it makes complete sense…undergarments are the most private items in our possession, and because nobody really sees them but us, we can postpone such purchases until times are a bit better.

The economic explanation is also quite intuitive as well. Clothing, including men’s underwear are considered as normal goods, which simply means that purchases of these goods are correlated to income. Other examples of these are appliances, entertainment, electronics, etc. For these types of goods, a change in income, or expected income (Income Effect), may indicate a rise or fall in demand for these products.

Normal goods are products whose demand tend to rise and fall as income rises. Undergarments are considered normal goods.

The MUI is a leading indicator as well. Leading indicators are economic measures that have some predictive power on the state of the economy before conditions actually shift, making them useful for businesses and policy makers alike. The MUI as an indicator, shows that underwear sales tend to dip when a recession is imminent or uncertainty about the economy is fairly rampant.

Data in recent years underscore the predictive power of the MUI. Sales for men’s underwear fell during the Great Recession of 2008-2009, echoing the dismal economic climate and reduced consumer spending. As the economy started showing signs of recovery, men’s underwear sales started to increase, reflecting increased optimism and consumer confidence.

The COVID-19 pandemic, which affected the entire world economy, also showed that men’s underwear sales declined sharply in 2020, as consumers decided to cut back on spending due to very uncertain times.

In brief (pun intended), the MUI offers an insightful picture of the economic landscape, albeit in a more quirky way. However, like any other economic measures, the MUI should always be looked at alongside other economic indices to gauge economic health and must be approached with a healthy dose of caution. Most importantly, the MUI reminds us that economics can be found in the most mundane, everyday things, even those that you may have in one of your drawers.

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