The Unemployment Rate measures the percentage of the total labor force that is unemployed but actively seeking employment. It is derived from the Current Population Survey (CPS), a monthly household survey conducted by the Bureau of Labor Statistics.
Why It Matters
The unemployment rate is one of the most watched indicators of labor market health. A low unemployment rate generally signals a strong economy with tight labor markets, while a rising rate suggests economic weakness and potential recession.
How It's Calculated
Unemployment Rate = (Number of Unemployed / Labor Force) ร 100
The labor force includes only people who are either employed or actively looking for work. Discouraged workers who have stopped searching are not counted, which is why the "U-6" broader measure is also worth monitoring.
The Sahm Rule
Developed by economist Claudia Sahm, this recession indicator triggers when the 3-month moving average of the unemployment rate rises by 0.5 percentage points or more relative to its lowest point in the previous 12 months. It has accurately identified every U.S. recession since 1970.
Natural Rate of Unemployment
Economists estimate a "natural" unemployment rate (sometimes called NAIRU) of around 4.0โ4.5%, below which inflation tends to accelerate. The Fed aims to keep unemployment near this level without generating excessive price pressures.
Market Impact
A rising unemployment rate signals economic weakness and increases expectations for rate cuts, which can weaken the dollar and boost bond prices. A falling rate suggests strength and may keep the Fed tighter for longer.