Here’s why lipstick isn’t as useful as an economic barometer as it used to be

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Once touted a barometer of consumer demand, lipstick appears to be losing its cachet as an economic indicator amid shifts in the market for beauty products, some analysts say.

The “lipstick index” is a term coined by former Estee Lauder chairman Leonard Lauder after the bursting of the dot-com bubble in the early 2000s sent the U.S. economy reeling. Lauder noticed that women substituted costlier luxury items for more practical indulgences like lipstick.

Since then, lipstick sales have become associated with consumer confidence, as rising sales of the product suggested consumers could be turning more cost-conscious in the face of a slowing economy. In fact, the CEO of French cosmetics giant L’Oreal cited the “lipstick effect” as recently as this week to account for buoyant demand in China.

“It’s the famous ‘lipstick effect’ — sometimes when people spend less on expensive items like cars or buying apartments, they have more available income and they like to indulge themselves with beautiful products,” CEO Jean-Paul Agon told CNBC this week. “It could be absolutely positive for us,” he added.

The lipstick industry is forecast to hit $17 billion in market value by 2023, according to marketing firm TechSci Research. However, in the face of a potential economic slowdown, the lipstick index’s reliability is being called into question, with the dynamics of the marketplace changing.

CNBC’s Chloe Taylor contributed to this report.

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