U.S. Unemployment Hits a 4‑Year High — Why LISEP’s “TRU” Shows a Much Deeper Slack

The headline U.S. unemployment rate rose to 4.3% in August 2025 (from 4.2%), the highest since October 2021 and in line with expectations. Broader slack also widened as U‑6 climbed to 8.1%. Yet an alternative gauge from the Ludwig Institute for Shared Economic Prosperity (LISEP) — the “True Rate of Unemployment” (TRU) — put functional unemployment at 24.3% in April, capturing underemployment and low‑income workers that official statistics miss. Together with a 62.3% participation rate, 0.3% MoM / 3.7% YoY wage growth, and a modest +22k nonfarm payroll print, the data point to a labor market that is cooling on the surface and structurally uneven beneath.

Contents

• A 4‑year high at 4.3%: what the headline tells us
• Beyond the headline: U‑6 and LISEP’s TRU at 24.3%
• What TRU measures — and why it matters
• Wages, hours, and participation: the price‑pressure lens
• Payrolls and composition: a cooler demand signal
• Why consumers still feel worse than the stats suggest
• Policy and markets: reading the Fed path
• A simple dashboard to track next
• FAQ

A 4‑year high at 4.3%: what the headline tells us

The unemployment rate increased to 4.3% in August from 4.2% in July, matching consensus and marking the highest level since late 2021. The number of unemployed rose by roughly 148k to about 7.384 million. The direction implies a gradual easing rather than a sharp break in labor conditions.

Beyond the headline: U‑6 and LISEP’s TRU at 24.3%

Broader slack widened: U‑6 — which includes discouraged workers and those working part‑time for economic reasons — rose to 8.1% from 7.9%. An alternative lens from LISEP estimates “functional unemployment” (TRU) at 24.3% in April, over 20 percentage points above the official rate. The gap underscores how underemployment and low‑income work can coexist with low headline unemployment.

What TRU measures — and why it matters

TRU counts people who are not in full‑time work (35+ hours) but want it, those with no job at all, and workers earning below roughly $25,000 per year (pre‑tax) as functionally unemployed. By design, TRU incorporates underemployed and low‑wage cohorts that headline measures overlook. This definition shines a light on structural issues in job quality and income stability, which are crucial for gauging real economic well‑being.

Wages, hours, and participation: the price‑pressure lens

Average hourly earnings rose 0.3% month‑over‑month and 3.7% year‑over‑year, a moderate pace consistent with disinflation progress. Average weekly hours held at 34.2. The participation rate ticked up to 62.3% as the labor force expanded by roughly 4.36 million, suggesting supply‑side normalization. In combination, these indicators point to easing labor demand without a re‑acceleration in wage‑price pressures.

Payrolls and composition: a cooler demand signal

Nonfarm payrolls rose by 22k, while private payrolls increased by 38k. Manufacturing‑related proxies softened at the margin, and government wage‑linked components declined by about 16k. One month does not make a trend, but taken with higher unemployment and broader slack, the mix is consistent with a cooler demand backdrop.

Why consumers still feel worse than the stats suggest

Consumer sentiment has weakened even as headline unemployment stayed low by historical standards. Metrics like TRU help explain the gap: households face unstable hours, involuntary part‑time work, and earnings near or below poverty thresholds. When job quality lags job quantity, day‑to‑day finances feel strained, and sentiment falls even without a formal recession signal.

Policy and markets: reading the Fed path

With unemployment at a four‑year high, broader slack rising, and wage growth moderate, the report tilts toward further policy easing rather than renewed tightening. Markets had already priced a high probability of a 25bp cut at the next meeting; these data reinforce that bias. Rate‑sensitive assets may benefit if real yields drift lower, but uneven job quality argues for selectivity across cyclicals and consumer‑exposed segments.

A simple dashboard to track next

• Unemployment path: does 4.3% stabilize or trend higher?
• U‑6 and TRU: do broader slack indicators keep rising?
• Participation and the employment‑population ratio: supply‑side healing.
• Wages and hours: 0.3% MoM / 3.7% YoY vs. 34.2 hours.
• Payrolls 3‑month average and sector breadth.
• Confidence/real incomes: whether sentiment aligns with job quality.

U.S. labor market snapshot — August 2025

Indicator	Latest	Previous	Notes
Unemployment rate	4.3%	4.2%	Highest since Oct 2021
U‑6 unemployment	8.1%	7.9%	Broader slack
TRU (LISEP, Apr)	24.3%	24.27%	Functional unemployment
Participation rate	62.3%	62.2%	Labor force expanded
Avg hourly earnings (MoM)	0.3%	0.3%	Moderate
Avg hourly earnings (YoY)	3.7%	3.9%	Disinflation‑friendly
Average weekly hours	34.2	34.2	Steady
Nonfarm payrolls	+22k	+79k	Softer headline
Private payrolls	+38k	+77k	Cooling demand

FAQ

Q. If unemployment is only 4.3%, why does the job market feel weak?

A. Broader slack (U‑6 at 8.1%) and LISEP’s TRU (24.3%) capture underemployment and low‑income work that the headline misses. Job quantity can look fine while job quality lags, which weighs on household finances and sentiment.

Q. Does this report point to a wage‑price flare‑up?

A. Not at present. Wage growth of 0.3% MoM and 3.7% YoY is moderate, and hours are steady at 34.2. The mix aligns with a gentle cooling of labor demand rather than re‑acceleration.

Q. What does it mean for the Fed?

A. Softer payrolls, higher unemployment, and broader slack argue for a cautious easing path. Markets were already pricing a 25bp cut; this report nudges the Fed bias in that direction, barring upside surprises in inflation.

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