Sunspots: A Driver of Unemployment

The elections are now over and decided, and thankfully we don't have any "dimpled chad" problems like in 2000, so the new administration can get to work implementing its agenda.  The members of that new administration probably do not know that rising unemployment rates are going to be a bigger challenge in 2025. 

This expectation comes from this week's chart, which shows an exotic relationship I have discussed here before.  The fluctuations of the sun's 10.6-year cycle tend to show up after a lag in economic data, including the yield curve and the unemployment rate.  The chart above compares the monthly sunspot number to the U-3 unemployment rate, using a 3-year time offset.  Putting it more plainly, the changes in sunspot counts tend to get echoed about 3 years later in the unemployment rate.

That is relevant right now because 3 years ago the sunspot count was rising rapidly as the new cycle was getting going.  The sunspot numbers are expected to peak in a few more months, and so that means rising unemployment is going to be with us for a while. 

The unemployment rate data in this chart are the official Bureau of Labor Statistics (BLS) data going back to 1947.  There are other data on unemployment which go further back in time, but those data are not considered to be as well calculated as the series which started after WW2 was over.  A couple of important points are worth noting in this chart.

The first is that the sunspot minimum tends to bring a low for the unemployment rate about 3 years later.  We are already past that point, and the unemployment rate has been rising.  Some analysts will blame this on the Fed, or the White House, but it is just the normal cycle, and the numbers are behaving as they are supposed to.

You can also see in this chart that there have been some instances when the unemployment rate did not follow the sunspot cycle's leading indication.  There were big layoffs at the end of the Korean War, and in the early 1970s when the Arab oil embargo hit the U.S. economy hard.  Those are understandable exceptions.

The big rise in unemployment during 2007-09 is a little bit harder to explain in relation to the sunspot cycle.  Former Fed Chairman Alan Greenspan managed interest rates poorly in the early 2000s, leading to the real estate bubble which peaked in 2005-06, and which led to the Great Financial Crisis (GFC) of 2008 when banks and other holders of mortgage debt had a lot of problems.  It did not help that the Fed was working extra hard in 2007 to make up for Greenspan's mistaken period of low rates. 

The economy would be better served if the Fed would just listen to the 2-year T-Note yield, and set its interest rate policy based on that message.  When the Fed officials think they know better, that is when we get problems of either overstimulation or excessive restriction.  What the Fed arguably did with those actions in the 2000s was to pull forward the effect of the sunspot cycle by a couple of years.  Since then, the unemployment rate has gotten back in sync again, except for the large spike during Covid.

This point is important because even though these episodic variations have occurred since 1947, the only time a rising sunspot cycle was not echoed by rising unemployment 3 years later was in 2012-15, in the wake of the GFC.  The Fed further bent the curve by throwing 3 rounds of quantitative easing (QE) at the problem.  Aside from that one instance, all of the other instances of rising sunspots have seen rising unemployment 3 years later. 

So we should reasonably assume that the rise in unemployment which has now started in 2024 is going to follow the historical pattern, and continue to see a rise until about 3 years after the peak in the sunspot cycle.  The incoming presidential administration might think that they have a whole lot of other agenda items in their plans, but they are going to find out that it is tough to escape the effects of this cycle.  They are going to have to face the problem of a higher unemployment rate, which tends to get in the way of accomplishing a lot of other things.  And that was going to be true no matter which candidate ended up winning the election.

One might reasonably ask what possible causative effect sunspots could have on the economy, and why there is a 3-year lag time.  That is an interesting question, but not an essential one.  Our human minds are naturally programmed to want to know why things happen.  Having a reasonable explanation for the "why" makes us feel better, but it does not really help us in this case.  We have more than 7 decades of evidence of this relationship working, through multiple solar cycles.  At some point, even if we cannot explain the "why", we can satisfy ourselves that the amount of evidence of the relationship is sufficient to accept its validity.