Why More Jobs Means Lower Commodity Prices

At first glance, it would seem logical to assume that as the U.S. employment rate increases, so too would the price of global commodities. This conclusion rests on the premise that working citizens have greater disposable income to spend on items such as food, energy or white goods. Furthermore, while the U.S. makes up less than 5 percent of world population, it consumes a much greater per capita percentage of raw materials. According to the Sierra Club’s Dave Tilford, America uses one-third of the world’s paper, a quarter of the oil, 23 percent of the coal, 27 percent of the aluminum and 19 percent of the copper. In other words, the U.S. has a significant influence on commodity demand -- and prices.

Yet there’s actually a positive correlation between the U.S. unemployment rate and global commodity prices: Historical data over the last 10 years reveals that the two largely move in tandem. While commodities, as tracked by the S&P Goldman Sachs Commodity Index, a basket of about 24 commodities, are more volatile than the unemployment rate, they nevertheless show a similar trend to unemployment.