Hemlines are plunging, is economy next?

ByABC News
February 26, 2012, 11:54 AM

— -- If hemlines are reliable predictors of economic or market trends, we may be headed for a slower economy and falling market.

At least since the 1920s, market watchers have debated the merits of "hemline theory," the idea that shorter skirts point toward economic booms and longer ones indicating slumps.

Hemline theory was allegedly launched by George Taylor, an economist at The Wharton School of the University of Pennsylvania. In 1926, he claimed that in booming economic times many women raised their skirts to show off their silk stockings. When times were bad, women lowered their skirts to hide that they couldn't afford stockings.

Now, as this month's New York Fashion Week showed, hemlines are falling again.

"We saw a lot of longer hemlines that fell just below the knee (at Marc Jacobs, Peter Som, BCBG). It was a fairly conservative season, which seems a bit depressing," says Jennifer Wright, editor in chief of TheGloss.com.

Brooke Moreland, of Fashism.com, agrees that the trend is "definitely longer."

"There are a few short skirts making it down the runways, but it is overwhelmingly skirts that are hitting just above the knee and tons of 'midi lenth' which hits right below the knee," Mooreland says.

If the hemline theory is right, this would indicate a mild slowdown, but not a full out recession. Or, perhaps, just continued uncertainty and mixed economic signals.

But does hemline theory work in an era when women don't wear stockings very often? For that matter, did it ever really work or is it just one of those wacky market indicators people chat about regardless of accuracy?

Last time I covered hemline theory was September 2009. I had just been to the Jill Stuart show at the Stephen Schwartzman building, formerly known as the New York Public Library. The dresses and skirts for Spring 2010 were shockingly short.

We all know what happened then. The stock market had an explosive rally, rising 15% for the year. Economic growth returned, with the economy growing 2.5%.

The most complete recent study of hemlines and the economy is by Marjolein van Baardwijk and Philip Hans Franses of the Econometric Institute Erasmus School of Economics. They examine monthly data on hemlines from 1921 to 2009, and evaluate these against the National Bureau of Economic Research chronology of the economic cycle.

Franses and Baardwijk couldn't find any evidence that hemlines predict economic performance, but they did find that economics predicts hemlines with a three-year to four-year delay. Which is to say, about three years after the economy goes into a recession, hemlines plunge toward the ankle.

"Hence, the current economic crisis predicts ankle length shirts around 2011 and 2012," they wrote in 2010.

And, sure enough, hemlines are falling right on schedule, if not yet all the way to the ankle.

Copyright 2012 CNBC.com.