What Is Unemployment Rate?
The percentage of the labor force that is jobless and actively seeking work.
The Full Definition
The unemployment rate measures the share of the labor force that is without a job and actively looking for one. It's a lagging indicator — it tends to rise after an economic downturn has already begun and fall after a recovery is already underway — but it remains one of the most closely watched economic data points because it directly reflects consumer spending power. The Federal Reserve weighs unemployment alongside inflation when setting interest rate policy, since a labor market that's too strong can stoke inflation while one that weakens too fast can deepen a downturn.
Real-World Example
A jump in the unemployment rate from 4% to 6% over a few months is often an early signal that a recession is underway or imminent, since rising layoffs typically precede a broader pullback in consumer spending.