With the August unemployment figures from the U.S. Bureau of Labor Statistics arriving just before Labor Day, we thought it was worth taking a deeper look at what the unemployment rate actually tells us about the American consumer.
The U.S. Bureau of Labor Statistics reported Friday that the unemployment rate held at 4.1% in August, with roughly 7 million Americans officially unemployed. Payroll employment increased by 162,000, a surprisingly strong number given the weakness in the previous quarter.
So much so, that the bond market immediately started pricing in the potential for an interest rate increase.
But another measure of the actual state of the employment situation tells a very different story.
The Ludwig Institute for Shared Economic Prosperity‘s (LISEP) True Rate of Unemployment was 24.9% in July – more than six times the federal headline rate. Their True Rate of Unemployment tracks the percentage of the U.S. labor force that does not have a full-time job (35+ hours a week) but wants one, has no job, or does not earn a living wage, conservatively pegged at $26,000 (in 2025 dollars) annually before taxes.
The two measures are answering fundamentally different questions. The BLS asks whether someone is unemployed. LISEP asks whether someone is economically employed. That is where the economic story becomes much more uncomfortable.
What Does “Functionally Unemployed” Mean?
That does not mean that one in four Americans is literally unemployed. LISEP defines “functionally unemployed” as people who have no job, want a full-time job but are working part time, or are working but earning below what it considers a living wage.
It means something arguably more important for understanding the economy: Under LISEP’s methodology, nearly one in four people in the labor force are functionally unemployed.
The U.S. Bureau of Labor Statistics itself acknowledges that its 4.1% unemployment rate does not capture everyone in the labor market.
Its broader U-6 measure, which includes unemployed workers, people marginally attached to the labor force and those working part time for economic reasons, was 7.7% in August. The Federal numbers also counted 4.4 million people working part time for economic reasons and another 5.7 million people outside the labor force who said they wanted a job.
The headline unemployment rate can fall while millions of people remain stuck in part-time work, accept low-paying jobs, leave the labor force or earn too little to maintain a reasonable standard of living. LISEP’s measure rose for four consecutive months through July, reaching 24.9%, even as the conventional unemployment rate remained near historic lows.
The True Rate of Unemployment – And Breaking Points
For the grocery industry, this distinction may be more important than it is for almost any other sector.
A consumer who technically has a job but cannot afford the same basket of groceries they purchased several years ago does not experience the economy as “4.1% unemployment.” They experience it through smaller baskets, fewer discretionary purchases, trading down, private label, promotions, greater reliance on credit, and postponed spending.
That is the tension sitting underneath today’s economic numbers.
The question is no longer simply whether Americans have jobs. It is whether those jobs generate enough economic security to keep consumers spending. The answer is increasingly evident in our conversations with grocery retailers: The American consumer is stressed, and spending is being affected.
And that leads to the bigger question retailers, manufacturers and policymakers should be watching most closely: When does the American consumer reach the breaking point?
The answer won’t be found in a 4.1% unemployment rate this Labor Day.