May Job Creation Slows amid Economic Uncertainty

The U.S. labor market continued to soften in May as employers navigated the Trump administration’s shifting tariffs policy and downbeat consumer sentiment. Payrolls rose by 139,000 jobs last month, slightly more than expected, according to the latest employment report from the U.S. Bureau of Labor Statistics.

Recent months have been roiled by the White House’s launch of on-again, off-again tariffs as well as efforts to slash federal jobs and spending. Job growth from March and April was revised down by a combined 95,000 jobs.

“Despite signs of a dimmer economic outlook than previously thought, the latest jobs report demonstrates that the labor market continues to be resilient,” said Sydney Ross, a labor economist at SHRM. “With May’s job gains coming in slightly above consensus expectations, this contradicts several economic data releases this week that paint a much bleaker picture. However, significant month-to-month downward revisions in hiring in March and April indicate that the labor market has cooled much faster than previously reported.”

Andrew Flowers, chief economist at Appcast, pointed out that employment growth has slowed to the weakest level in 14 years. “The average monthly job gains over the past year have slowed to about 144,000, which is the lowest level since 2011,” he said.

“While today’s report aligns with expectations, reflecting a labor market that is steady but cautious in the face of ongoing uncertainty, there are signs of deceleration with hiring momentum slowing across the board,” said Ger Doyle, regional president for North America at ManpowerGroup.

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Cory Stahle, an economist at the Indeed Hiring Lab, said that the U.S. labor market is notably cooler than it was a few months ago, and continues to soften.

“There’s not much room for further slowdown before unemployment meaningfully starts to rise,” he said. “The steady erosion in the U.S. job market cannot continue forever. At some point, there will just not be much left to give. In a low-hiring, slow-growth environment, employers can only hold onto their existing employees for so long before they, too, will have to be let go, increasing unemployment even as job opportunities continue to shrink.”

The early impacts of tariffs are just one drag on job growth, along with other headwinds such as federal workforce layoffs and funding cuts, slowing immigration, and continued high interest rates, said Daniel Zhao, lead economist at Glassdoor.

“Tariff impacts will likely show up later in the year, but in the interim, the job market is waiting for the other shoe to drop,” he said. “The combination of headwinds risks decelerating the job market just before the full weight of the tariff shock arrives.”

Ross said that as employers seek clarity about significant changes to trade policies, many organizations are at a standstill, suspending their 2025 earnings guidance, as they struggle to adapt to the constantly shifting regulatory environment.

“This report will likely persuade the Federal Reserve to hold on interest rates, absent greater deterioration in the labor market or further disinflation,” said Noah Yosif, chief economist at the American Staffing Association. “However, as further trade deals or interest rate cuts materialize over the coming months, reduced anxiety among employers will help the labor market recover from its low-hiring, low-firing funk.”

Industry Breakdown

Health care continued to lead job creation with 62,000 new positions, above the prior 12-month average of 44,000 jobs.

“Really only two sectors made up the bulk of all job growth — health care and leisure and hospitality [+48,000 jobs],” Flowers said. “There were signs that professional and business services job growth has weakened further, with the three-month moving average now negative.”

Joshua Smith, senior vice president at Adecco, said, “We’ve seen notable gains across industries including health care as well as leisure and hospitality, which often sees a seasonal boost this time of year. We’re also seeing signals of an employers’ market, but one in which businesses have learned from the past and have become more flexible and adaptable.”

Zhao said that the Trump administration’s tariffs and other policies are influencing multiple sectors. “Manufacturing lost 8,000 jobs as firms began responding to tariffs in May,” he said. “The best-case scenario for tariffs reviving American manufacturing will take many years to play out, and in the short run, tariffs are likely acting as a drag on manufacturing employment.”

He added that tariff frontrunning initiated a surge in activity that is keeping demand for warehousing and transportation high, although the peak of such activity is already in the rearview.

Leisure and hospitality job growth was concentrated more in restaurants and bars (+30,200 jobs) than accommodation (+1,200 jobs), which may point to strong local consumer spending even if international tourism is muted, Zhao said.

“Temporary help services, a bellwether industry for how employers feel about hiring, shed 20,000 jobs in May, a concerning sign of continued pullbacks in hiring,” Stahle said. “And federal employment continued to lose jobs in May, down 22,000 from the previous month. The pace of decline has accelerated in recent reports, and there are now 59,000 fewer federal workers than there were in January.”

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May was the fourth consecutive month of federal employment declines, but only a fraction of total cuts are reflected so far.

“Many federal workers remain on paid leave or are receiving severance pay, which means they don’t show up as unemployed,” Zhao said. “Lawsuits and court orders have also led to delays in federal job cuts.”

Doyle said that Manpower’s real-time data shows a 7% month-over-month drop in open job postings and a 16% decline in new postings, marking the first full contraction of 2025 across all functions. “Year-to-date, new postings are flat compared to 2024, indicating a pause rather than a pullback,” he said.

Unemployment Steady

The unemployment rate remained at 4.2% for the third consecutive month. Unemployment has remained in a narrow range of 4 percent to 4.2 percent since May 2024. The number of unemployed people in May was calculated to be 7.2 million.

Flowers noted that the labor force has shrunk considerably: “Focusing on prime-age workers, labor force participation slipped to 83.4%, still relatively high compared to the decade prior to the pandemic, but now a confirmed trend in the wrong direction.”

Wages Rise

Worker pay grew more than expected, with average hourly earnings up 0.4% during the month and 3.9% year-over-year, compared to respective forecasts for 0.3% and 3.7%.

“Wage growth has begun to show worrying signs of stubbornness,” Flowers said. “Average hourly earnings have held steady at 4% annualized growth, perhaps catching the Fed’s attention, and not in a good way. The outlook is trending towards stagflation — slowing job growth, but public policy creating upward pressures on prices and wages.”