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May jobs report: Not yet coming apart at the seams

Market response

June 9, 2025 | 2 min read
Seema Shah
Chief Global Strategist
Christian Floro, CFA, CMT
Market Strategist
Magdalena Ocampo
Market Strategist

The May jobs report showed a robust 139,000 gain in payrolls, above consensus expectations, and comes even amid peak trade uncertainty. A mix of cyclical and structural industries continued to drive job growth, while declines in labor supply helped prevent a rise in unemployment. Overall, despite the ongoing weakness in government employment, the labor market is not yet showing signs of a significant decline.

Non-farm payrolls

Thousands, January 2022–present

Chart showing non-farm payrolls in thousands from January 2022 to present time

Source: Clearnomics, Bureau of Labor Statistics, Bloomberg, Principal Asset Management. Data as of June 6, 2025.

Report details

  • Total non-farm payrolls increased by 139,000 in May, above expectations but somewhat slower than last month’s (downwardly revised) 147,000 gains. Despite that the payroll survey was conducted during the week of peak trade uncertainty, and while some cracks are forming in U.S. employment data, with clear signs of softening, overall conditions remain fairly solid. Nevertheless, it is likely that ongoing trade policy uncertainty will increasingly weigh on the U.S. labor market ahead.
  • The overall job growth in May came across a mix of cyclical and structural industries, with employment gains in healthcare and leisure & hospitality, which added 62,000, and 48,000 jobs, respectively. Strong gains in the latter have helped counter concerns about trade war uncertainty and a pull-back in tourism spilling over to the services sector, at least for now.
  • Offsetting the strength in overall job growth is a decline in temporary help services, which lost 20,000 jobs. The continued modest downtrend in this area is a potential signal that labor demand is continuing to soften. Manufacturing also saw weakness, shedding 8,000 jobs.
  • There was also a fourth consecutive monthly decline in federal employment, with 22,000 jobs lost in May, bringing the total number of jobs lost since the start of the year to 59,000. These declines continued to be offset by gains within state and local government hiring, however, which grew by 21,000 in May. Note that the BLS counts workers on paid leave or ongoing severance or leave as employed, suggesting the broader fallout from federal government layoffs may be slow to materialize.
  • The unemployment rate held steady at 4.2%, helped by the labor force participation rate ticking down to 62.4% from 62.6% in April. Average hourly earnings rose 0.4% in May, slightly above expectations, keeping the annual rate steady at 3.9% from an upwardly revised 3.9%.
  • Despite the lingering strength, the labor market remains in an uneasy equilibrium—low layoffs coupled with low hiring—increasing concerns that only a mild pickup in layoffs is needed to see the unemployment rate rise.

Policy outlook

Even during peak trade uncertainty, the U.S. labor market remained fairly solid. Payrolls are still in robust territory, and—although there are clearly cracks forming and employment data is likely to show more evident signs of softening towards the end of summer—this does not appear to be a labor market that is starting to come apart at the seams. With surveys revealing that both small and large businesses plan to hold onto labor despite the more challenging backdrop, coupled with a severe tightening in immigration policy, it’s unlikely the unemployment rate will rise materially this year.

So far, U.S. labor market data is holding up nicely, and the pain trade remains equities grinding higher since the April sell-off despite investors’ reluctance to buy in— the market is clearly skittish about economic risks. For the Fed, there is little urgency to cut rates. They will likely hold on until the trade mist clears to reduce the risk of a policy misstep, particularly while average earnings data remains on the high side of estimates. We still expect the Fed’s first rate cut to come in late 2025.

Macro views
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