Your Dry Cleaner May Notice Economic Headwinds Before You Do
Picking up your dry cleaning seems to be just another mundane chore alongside running errands, shopping for groceries and cleaning the apartment. But speak to the owner of your local dry cleaner and you will be surprised to discover the bigger picture of economic trends.
Farrokh Langdana came up with the idea of gauging the health of the economy by studying dry cleaners. As a professor of finance and economics at the Rutgers Business School in Newark and New Brunswick, Langdana created the dry cleaning index (RBS-DRI) to track the demand for dry cleaning of work clothes. The index data was collected by his MBA students who surveyed dry cleaners in New Jersey about their sales between 2014 and 2015.
The index relies on two key assumptions. First, people need more dry cleaning when they are working. Second, discouraged job seekers who previously dropped out from the job hunt return to the process in times of strengthened economic prospects, meaning they would need to dry clean their suits to look their best for interviews.
“More shirts mean people are not only working but also attending interviews,” Langdana said. “When those discouraged workers are going back to interviews, they are coming back to the work force.”
The discouraged workers Langdana referred to are defined as those who “have given a job-market related reason for not currently looking for work,” according to the Bureau of Labor Statistics (BLS). The official unemployment rate referenced by the Federal Reserve, or U-3 under the BLS nomenclature, measures jobless persons actively seeking employment as a percentage of the labor force but excludes discouraged workers from its formula.
The unemployment rate peaked at 9.9 percent in 2009 during the financial crisis and has since fallen to 5.6 percent in 2014 and 5.0 percent in 2015. As of August 2016, the unemployment rate stood at 4.9 percent. While this is good news, a continuous downtrend in unemployment alone may not suffice to prove the economy is going strong.
A RBS-DRI of 50 means the volume of formal work apparel for dry cleaning stayed the same between years. Below 50 indicates a drop in volume whereas above 50 reflects an increase. The RBS-DRI reached 62.5 in December 2014, when the index was first introduced, and retreated to 60.3 in 2015. While 2014 saw an uptick in macroeconomic recovery, the growth in 2015 was lukewarm, according to Langdana.
Langdana’s dry cleaning index has its limitations. It only focuses on people working in industries that require formal work attire. Also, dry cleaning sales could suffer not only when the economy is weak but also as companies no longer require staff to dress in business suits. Employees have gradually shifted to wearing easy-care work clothes that do not need dry cleaning, said Richard Kwan, owner of Newport Dry Cleaners in Jersey City.
Despite its flaws, the index points to a trend similar to what dry cleaners in Jersey City saw first-hand. Jung Moon, who owns Jon’s Dry Cleaners at Newport Centre, said business tanked in 2008 during the financial crisis and rebounded in 2014, but has since gone downhill, suggesting 2016 is going to be a terrible year.
Diana Man agreed — she has been running A+ Cleaners near Goldman Sach’s Jersey office for 16 years. “Lots of cleaners closed down because the economy now is bad,” she said.
