Aim

The lipstick effect or lipstick index is the theory that in periods of economic downturn, people are willing to splurge on less expensive luxury goods such as lipstick instead of more expensive luxury goods such as handbags or clothing. This idea has also been expanded to cosmetics in general. Therefore in periods of recession, it has been predicted that cosmetic sales may increase. While makeup sales alone would be an insufficient economic indicator, this observed trend is an interesting case study into human psychology and economic circumstances. 

The aim of this project was to investigate whether the lipstick index holds any historical merit by comparing the annual cosmetic sectoral output to inflation. This was achieved by downloading data from FRED, manipulating the data and testing correlation in R, and then visualising the data in Tableau.

Data Collection

The two datasets were collected from the Federal Reserve Economic Data (FRED) which is a database run and maintained by the Research division of the Federal Reserve Bank of St. Louis. The datasets were downloaded from FRED as two CSVs.

Analysis in R

R was used to read in the two CSV files, format the date to just be the year instead of the full date, and combine the two datasets into one data frame which was then exported as a CSV to be used in Tableau. R was used to run Pearson's correlation on the combined dataset.

Data Visualisation

Insights

While by just looking at the visual above, it would appear that the cosmetic sectoral output and inflation are somewhat positively correlated such as the decrease in both inflation and the cosmetic sectoral output during the 2008 great financial crises. However, the results of the analysis found that there was a very low correlation between inflation and the cosmetic sectoral output as the Pearson's correlation coefficient was just below 0.15. Furthermore, the correlation coefficient was positive meaning that there was a slight positive correlation between inflation and the cosmetic sectoral output.

To conclude, while small increases to makeup sales may have been observed following periods of economic downturn or have a negative correlation, it appears that overall over that past 40 years, historical makeup sales in the United States have vaguely followed inflation rates with a somewhat visible but statistically low correlation.