The US economy added 139,000 jobs in May, slightly above expectations but well below the pace of earlier months, as federal government downsizing and tariff-related uncertainty continued to weigh on business sentiment. The unemployment rate held steady at 4.2%, but key underlying indicators pointed to growing fragility in the labour market.
May’s job gains exceeded the consensus forecast of 125,000, though April’s figure was revised down from 147,000 to 117,000, and March was lowered by 65,000 to 120,000. Overall, the prior two months saw a net downgrade of 95,000 jobs. Meanwhile, the labour force participation rate slipped to 62.4%, its lowest level in three months, with 254,000 workers moving from employment to joblessness in May—the sharpest rise since early 2022.
Healthcare gains offset government losses
Healthcare was the standout sector, contributing 62,000 new jobs—well above its 12-month average of 44,000. Leisure and hospitality added 48,000, and social assistance added 16,000. But these gains were partially offset by a 22,000-job decline in the federal workforce, attributed to ongoing job cuts under President Trump’s Department of Government Efficiency (DoGE) initiative. Since January, 59,000 federal jobs have been eliminated.
The manufacturing sector shed 8,000 jobs—the largest monthly decline so far this year—as trade war uncertainties persisted. Employment in transportation and warehousing ticked up slightly but remained below early-year levels, while temporary-help services posted their sharpest decline since October.
Wage growth strong but participation falls
Despite slower hiring, wages showed surprising strength. Average hourly earnings rose 0.4% in May and 3.9% from a year earlier—both above expectations. Still, economists cautioned that this may reflect shrinking labour supply rather than a robust labour market.
“The unemployment rate held steady for the ‘wrong’ reasons—not because jobs are plentiful, but because workers are dropping out,” wrote Bloomberg economists Anna Wong, Stuart Paul and Eliza Winger.
Tariff policy and fiscal tightening raise recession risk
Economists and market participants are watching closely to see how President Trump’s fiscal consolidation and tariff policies will impact the broader economy. Job losses in the public sector are expected to ripple into contractors, research institutions, and other groups reliant on government funding. Scott Anderson of BMO Capital Markets estimated that “at least half a million jobs” could be at risk.
Consumer sentiment remains shaky. The University of Michigan’s May survey showed no recovery from April’s steep decline, and manufacturing activity fell to its lowest reading since June 2024. Earlier in the week, payroll processor ADP reported just 37,000 private-sector job gains—the weakest in over two years.
Fed likely to hold rates despite labour market cracks
The jobs report lands just before the Federal Reserve enters its pre-meeting blackout period. While inflation remains in check—running at 2.3% annually—policymakers have flagged tariff-related risks and are unlikely to move on interest rates until further clarity emerges.
“Stronger than expected jobs growth and stable unemployment underline the resilience of the US labour market in the face of recent shocks,” said Lindsay Rosner of Goldman Sachs Asset Management. However, Daniel Zhao of Glassdoor warned, “this report shows the job market standing tall, but… it’s only a matter of time before it starts straining against headwinds.”
Markets reacted positively to the headline numbers. Treasury yields and stock futures rose, and the US dollar strengthened modestly.
