Understanding how unemployment impacts the economy

Published: 10/03/2023
Updated: 01/10/2024

Workforce availability is an important indicator of economic health

by Kristen Stephenson

Earlier this year, GPEC launched the Economic Monitor, a comprehensive web tool designed to provide timely, actionable insights into the state of the economy. Through an exploration of key economic indicators, the Economic Monitor offers a concise picture of health at both national and regional levels.

Each month, I’m diving into one of the indicators from the Monitor to share in greater detail what the metric measures are, why it matters to the economy and what the current numbers tell us. This month, we’re talking about unemployment rate.

What does unemployment rate measure?

The unemployment rate measures the percentage of people in the labor force who are not employed but are actively looking and available for work. People who have not actively looked for work in the last four weeks are excluded from the labor force, and therefore the unemployment rate. The Bureau of Labor Statistics measures other indicators of labor utilization that take into account discouraged workers, marginally attached workers and part time workers, but the aforementioned indicator is the official “unemployment rate.”

Why does unemployment rate matter?

The unemployment rate is one of the most well-known and reported indicators of the economy. The unemployment rate shows the available capacity of the workforce. It can also indicate financial stress – when an individual is jobless, they are much more likely to reduce their expenditures, which impacts overall consumer spending, another key economic indicator.

It's important not to look at unemployment rates in a vacuum but to consider it along with the current size of the labor force and the labor force participation rate. If the unemployment rate remains steady or decreases while the labor force is shrinking it can be a sign that workers are becoming discouraged and are no longer looking for employment opportunities.

What do the current numbers say?

The United States unemployment rate was 3.8% as of August 2023. This rate is nearly unchanged compared to the same time last year when it was 3.7%. The rate has been persistently near historic lows for the last couple of years, even as inflation and other external pressures have affected the market. At the same time the labor force and employment levels have continued to grow. By all accounts we should be seeing an increase in unemployment and a decrease in hiring, yet that has not been the case.

The story is much the same in Arizona as it also continues to see near-historic lows in unemployment rates. As of August 2023, the State’s unemployment rate was also 3.8%. This was a slight increase (0.2%) from the same time in July 2023 but down from 4.0% a year ago. In the same year-over-year comparison, our labor force increased by 1.8%, indicating a robust employment situation.

However, there are factors to continue to watch for which could affect the employment situation. Additional interest rate increases by the federal reserve or a potential government shutdown could pause hiring and drive the unemployment rate up. As always, we will continue to monitor the unemployment rate and share insights as correlated factors impact the numbers.

Track trends in the Economic Monitor

To monitor unemployment rate trends in real time along with me, mapped alongside 13 other key indicators of health, visit gpec.org/monitor. We hope you find the Monitor a valuable tool in understanding the ever-changing economic landscape.

See Economic Monitor