This dashboard focuses on the U.S. labor market and measures labor market tightness using the unemployment gap, defined as the difference between the unemployment rate and an estimate of the natural rate of unemployment (u*). When the unemployment rate is below the natural rate, the labor market is considered tight, indicating that labor demand exceeds labor supply. When the unemployment rate is above the natural rate, the labor market is considered slack.
This approach provides a macroeconomic, equilibrium-based view of labor market conditions. There are other complementary measures of labor market tightness that capture different dimensions of the labor market. For example, the New York Fed HPW Index measures tightness based on hiring conditions and vacancy-to-unemployment ratios. In addition, the Kansas City Fed’s Labor Market Conditions Indicators (LMCI) provide a broader assessment of labor market health using multiple indicators.
The website presents three approaches to interpreting the unemployment gap. Option 1: Credible Set View uses the Kansas City Fed model-based natural rate of unemployment and its 68% credible set. If zero falls within the unemployment-gap band, the labor market is described as roughly balanced. If the entire band lies below zero, the labor market is tight, and if it lies above zero, the labor market is slack.
Option 2: Standardized Gap View divides the unemployment gap by the sample standard deviation of the unemployment gap over the displayed time window. It measures how large the current gap is relative to its typical variation in the selected sample. Values below −1 indicate tight conditions, values above +1 indicate slack, and values between −1 and +1 indicate the labor market is roughly balanced.
Option 3: Standard-Error-Scaled Gap View divides the Kansas City Fed unemployment gap by an approximate standard error of the Kansas City Fed natural unemployment rate, computed as half the width of the 68% credible set. Values below -1 indicate tight conditions, values above +1 indicate slack conditions, and values between -1 and +1 indicate the labor market is roughly balanced.
Select a custom start month and end month, then update the dashboard. You can also download the data currently shown in each chart.
The latest values update with the selected sample window.
These series do not all update on the same schedule.
This chart compares the unemployment rate with the Kansas City Fed model-based natural unemployment rate, its 68% credible set, and the CBO noncyclical rate of unemployment.
I compute the unemployment gap using the Kansas City Fed model-based natural unemployment rate and its 68% credible set. If the full gap band is above zero, the labor market is slack. If the full gap band is below zero, it is tight. If zero falls inside the band, the labor market is roughly balanced.
I divide each unemployment gap by the sample standard deviation of that unemployment-gap measure over the displayed time window. Values above +1 indicate slack, values below -1 indicate tightness, and values between -1 and +1 indicate the labor market is roughly balanced.
This chart divides the Kansas City Fed unemployment gap by an approximate standard error of the Kansas City Fed natural unemployment rate, computed as half the width of the 68% credible set. Values above +1 indicate slack, values below -1 indicate tightness, and values between -1 and +1 indicate the labor market is roughly balanced.
The comparison below uses the most recent month available in the selected sample.
| Measure | Comparison month | Value | Classification |
|---|
The CBO series is reported at a quarterly frequency. In this dashboard, each quarterly value is repeated across the corresponding three months to enable comparison with monthly unemployment data.
All data are publicly available. Data transformations and alignment are performed by the author.
Author: Johnson Oliyide
Research Associate, Federal Reserve Bank of Kansas City
This dashboard presents measures of labor market tightness based on publicly available data and model-based estimates.
The views expressed in this dashboard are those of the author and should not be interpreted as reflecting the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
The data used in this dashboard are obtained from publicly available sources, including the Federal Reserve Bank of Kansas City, the U.S. Bureau of Labor Statistics, and the Congressional Budget Office. The author does not claim ownership of these data.