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Chart In Focus

The Secret Driver of Unemployment

Chart In Focus
November 12, 2010

There are people who get very excited about the relationship between planets' positions and the stock market, but I'm not one of them.  I'm open minded, but I still have not seen the evidence that such information can be used in a consistent way.

But there is one bit of data related to the solar system that is demonstrably useful, and that is the sunspot number.  Sunspots are a symptom of greater activity in the sun, and they wax and wane on a very consistent 11-year cycle.  As far back as 1924, Alexander Chizhevsky was correlating sunspot activity to social phenomena including disease outbreaks and revolutions.

This week's chart compares the monthly sunspot number to the U.S. unemployment rate.  The key here is that the sunspot data has been shifted forward by 3 years in order to reveal its leading indication for the unemployment rate.  What this means is that about 3 years after a peak in sunspot activity, we see a peak in the unemployment rate.

But we also see peaks in the unemployment rate at other times.  What about that?  The answer lies in what governments were doing at those times to get in the way of the economy unfolding according to its normal and natural cycles.  Sometimes it is the U.S. government, and sometimes it is the actions of other governments.

Back in the mid-1970s, the Arab Oil Embargo had a big negative effect on the U.S. economy, and it did not help that the Fed was trying to fight the price inflation brought about by the higher oil prices.  Once those conditions abated, the unemployment rate got back into its normal relationship to the sunspot cycle.

We can see similar strange bulges in the unemployment rate at other times when governmental action was putting its thumb on the scale.  The most recent spike up in the unemployment rate came because the Fed was at first too easy with monetary policy in 2003-04, fueling the housing bubble, and then the Fed kept rates too high for too long and brought about the violent collapse of the housing bubble.  Things are now finally starting to get back to normal, and we should expect to see the unemployment rate drop.

But that drop in unemployment should only continue until around 2012.  The sunspot number bottomed in August 2009, and so counting forward 3 years, we should expect to see a bottom in the unemployment rate around August 2012, plus or minus.  Then the natural rise in the sunspot number will have its echo in a natural rise in the unemployment rate.

Economists who have studied this believe that there is an agricultural tie-in that explains this relationship.  Sunspot activity affects rainfall by interfering with the ways that cosmic rays interact with the atmosphere to form rain clouds.  See this, and also this

Greater or lesser crop yields have an influence on the inflation rate, and as I discussed back on August 13, 2010, inflation also tells us ahead of time what is coming for the unemployment rate. 

So, looking ahead, we can expect a bottom of the current decline in unemployment around 2012.  Then we should see a rising unemployment rate in 2013 and beyond, reaching a peak about 3 years after whenever the current sunspot cycle sees its peak.  What sort of amplitude we'll see, and any extra spikes in unemployment that are not on this schedule, will depend on whether governments put their thumbs on the scale again. 

Tom McClellan
Editor, The McClellan Market Report

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