Figure 1

Line chart of the unemployment rate and a counterfactual, percent, 12-month trailing averages from mid-2023 through July 2026. The dark navy line, the actual unemployment rate, rises steadily from about 3.55% to about 4.33%. The gold dashed line, what the rate would have been if only job-finding had changed while the rate of entry into unemployment stayed at its 2023 level, tracks the navy line until early 2024 and then flattens near 3.85% to 3.93%, ending about 0.4 percentage point below the actual rate.

The ins and outs of unemployment. Every month some workers enter unemployment and others leave it. Expressing each as a monthly rate lets us weigh what each margin contributed to the rise in unemployment. The inflow rate tracks entries into unemployment relative to the number employed a month earlier. The outflow rate tracks exits from unemployment relative to the number unemployed a month earlier. Both margins take into account that some people move into and out of the labor force, and so also make a minor adjustment for the size of the labor force.

Both margins have moved since 2023. The Bureau of Labor Statistics (BLS) Current Population Survey (CPS) measures both flows directly. The 12-month average of the inflow rate has risen from 1.96% to 2.13% since June 2023, while the outflow rate has fallen from 53.1% to 47.8%, as the two panels below show. To assess what those movements mean for unemployment, we use a simple relation that holds very well in the data: the unemployment rate is closely approximated by the ratio of the inflow rate to the sum of the inflow and outflow rates. The Unemployment Flows tab on the Data page carries the evidence for how well.

Figure 2

Two-panel line chart of monthly unemployment flow rates, January 2023 through July 2026, each panel showing the monthly rate as a faint line with the 12-month trailing average in bold. The left panel, in salmon, is entries into unemployment relative to the number employed a month earlier; the bold average falls to about 1.94% through 2023, then rises to roughly 2.17% by early 2026 before easing to 2.13%. The right panel, in teal, is exits from unemployment relative to the number unemployed a month earlier; the bold average declines fairly steadily from about 54.7% at the start of 2023 to about 47.8% at the end. Both monthly lines break at October and November 2025.
Rates of entry into and exit from unemployment, January 2023 through July 2026. Faint lines are monthly rates; bold lines are 12-month trailing averages, the basis on which the rates quoted in the text are measured. Entries (left) are measured relative to the number employed a month earlier, exits (right) relative to the number unemployed a month earlier. The monthly lines break at October and November 2025, which are unavailable because the survey was not collected in October.

Slower unemployment outflows are not the whole story. The two rates differ by an order of magnitude in level, so a small absolute change in the inflow rate carries as much weight as a large one in the outflow rate. In proportional terms the two moved almost symmetrically, the inflow rate up about 9% and the outflow rate down about 10%. Holding one rate at its 2023 level and letting the other evolve as observed, the higher inflow rate accounts for roughly 42% of the rise in the implied unemployment rate and slower job-finding for roughly 54%. The Figure at the top of this note puts the same arithmetic in levels: with the inflow rate held at its 2023 level and the outflow rate alone changing, the unemployment rate would have averaged about 3.9% over the past year rather than 4.3%.

Separations remain historically low. A labor market in which both margins are contributing is a different setting from one in which only job-finding has cooled. Whether the inflow rate keeps climbing is worth watching. It remains low by the standards of the past three decades: the inflow rate averaged 2.85% from 1990 through 2019, well above its current level, though only a little above its 2019 average of about 2%. Monthly series for both rates, together with their components and the approximation above, are now on the Data page.