Even when the market is slumping and wages are flat, it’s not hard to justify the relatively cheap pick-me-up that comes with a buying a new lipstick or eye shadow. That’s why historically the beauty industry has been one of the few businesses to fare well in recessionary times.

Not this time around (see related slideshow).

The weak economy couldn’t come at a worse time for the makers of eyeliner, perfume, and lip plumpers. Diminishing department-store traffic—which has been declining about 1 percent annually for a decade—has hit the big companies, affecting sales of categories like color cosmetics, which has had virtually flat sales for the past couple of years. Younger buyers are throwing more dollars at iPods, cell phones, and other electronics—a problem when, like Sephora, the under-25 crowd makes up 50 percent of your clientele. And the rising price of oil doesn’t just make gasoline more expensive, but cosmetics ingredients and packaging (often made of plastic) as well. No wonder L’Oréal’s U.S. revenues fell 7 percent in the first quarter of 2008 and Procter & Gamble’s stock has been in a slump all year.

On top of all those issues, daily news of the economic slowdown has made many consumers wary of spending too much on frivolous extras. “We don’t think spending is going to come to a screeching halt, but people are waiting to see how this is going to settle and how long it is going to last,” says Karen Grant, senior beauty analyst for the NPD Group. “With that uncertainty comes a certain amount of trepidation.”

Not all sectors of the beauty industry are created equal, and that is especially true now. “Fragrance is getting it the worst,” Grant says. “That particular category is the least recession-proof, at least in the U.S.” Men’s and women’s fragrance sales declined last year to a total of $2.94 billion, according to NPD, their lowest level since 2003.

Since perfume doesn’t have the visible results of lip gloss or wrinkle cream, and can have a comparatively high price tag, it is often the first beauty item consumers sacrifice when times are tight. “Fragrance is not something you have to have to look good,” explains independent retail consultant Patricia Pao. “If anything is going to suffer in a recession, the fragrance industry generally has a harder time.”

It had already been hurting since 9/11, in part because celebrity fragrances have also become industry drivers. They attract younger buyers, but require a huge (and expensive) marketing push at launch, and they don’t have the lasting appeal of more classic scents. The past six months have been particularly tough for the fragrance sector, since it relies heavily on holiday sales. According to the National Retail Federation, the 2007 holiday sales season (overall, not just beauty) was the weakest since 2002, with sales rising just 3 percent to $469.9 billion. (One area that is doing well for some brands, like Victoria’s Secret Beauty and Marc Jacobs: body fragrances, which are less expensive, says Larry Paul, a beauty-industry consultant.)