What is the unemployment rate?
In one line: The unemployment rate is the percent of people in the labor force, working or actively looking, who don't have a job but are searching for one.
A simple example
The labor force is everyone who has a job, plus everyone without one who is actively looking.
Say the labor force is 170 million people, and 7 million of them are looking for work.
- Unemployment rate = 7 ÷ 170 × 100 = about 4.1%.
People who aren't looking, like retirees, full-time students or anyone who has stopped searching, aren't counted as unemployed. They're outside the labor force.
In the US, the Bureau of Labor Statistics (BLS) gets this number from a monthly survey of households. It comes out in the same report as Nonfarm payrolls, usually the first Friday of the month at 8:30 am ET.
Why it matters
It's one of the two things the Federal Reserve is told to aim for: maximum employment and stable prices.
- A rising rate can mean the economy is cooling. That can bring rate cuts, and it often shows up around a Recession.
- A very low rate can mean a tight job market. Wages may rise, which can keep Inflation up.
The weekly jobless claims report gives an earlier, rougher look.
A common mistake
Reading the payrolls number and the unemployment rate as one story. They come from two different surveys: one of employers, one of households. In the same month, jobs can rise while the unemployment rate also ticks up, for example when more people start looking for work.
A move of 0.1 point can be just survey noise. Look at the trend over several months before deciding what it means.
Questions
What counts as unemployed?
Someone without a job who has looked for work in the past four weeks and is available to work. People on temporary layoff are counted too.
What is a normal unemployment rate?
It changes over time. There's no fixed "normal," which is why markets compare each report with forecasts and recent months.
What is U-6?
A broader rate that also counts people working part time who want full time, and some who have stopped looking. The headline rate is called U-3.
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