May jobs report laps expectations, as unemployment remains steady

MANHATTAN (CN) — The U.S. economy added 172,000 jobs in May, eclipsing expectations and showing the labor market is not cracking, reports showed Friday.

The print was well above the 115,000 jobs added in April and more than double the 80,000-job median forecast. As expected, the unemployment rate remained at 4.3%, according to the release from the Bureau of Labor Statistics.

Revisions to the two previous jobs reports were also positive. March's jobs report was revised up by 29,000 jobs, while April's report saw a bump of 64,000 jobs. The combined changes show the labor pool consistently added at least 170,000 jobs per month over the last three months.

A few sectors saw notable job increases. Leisure and hospitality gained 70,000 jobs in May, a huge increase over the previous monthly gain of 14,000 jobs, and restaurants and bars ticked up by 48,000 jobs. However, many other sectors, including manufacturing, construction and warehousing, saw little or no jobs added.

Surprisingly, government saw a 52,000-job increase last month; experts warn the increase is likely a one-off and could be wiped out by revisions.

Apart from the 22,000 jobs lost in the financial sector, this employment report doesn't yet indicate artificial intelligence is having a marked impact on the labor pool.

"AI may eventually kill off jobs, but that time is not now," said Jamie Cox, managing partner at Harris Financial Group. "It's also very difficult to remain anchored to a stagflation narrative when growth and employment are rising."

The monthly private payroll report from ADP came in better than expected, too, as 122,000 jobs were added last month, compared with the 111,000 most analysts had forecast.

The gains were split mostly among smaller and larger companies with mid-sized businesses of 50 to 250 employees gaining just 17,000 positions. However, nearly all sectors saw gains, with only information and natural resources/mining posting any losses.

"Hiring was more broad-based in May than we've seen in the last few years," said Nela Richardson, ADP's chief economist. "The labor market continues to show sustained momentum going into the summer hiring season."

The three-month average of private sector job gains is now just under 100,000, but some experts worry about the impending toll from the Iran conflict.

"Heightened uncertainty from the war will show up in the data with a lag, as delayed or canceled headcount expansions by firms won't appear immediately," Matthew Martin, senior U.S. economist at Oxford Economics, wrote in an investor's note. "Fiscal stimulus has outweighed the drag from higher energy on consumer spending so far, but that balance will begin to shift."

Job openings also saw a notable increase in April, rising to 7.6 million from 6.9 million in March, the highest points since mid-2024, according to the monthly JOLTS report. The quits rate fell to 1.9%, its lowest since 2014 excluding the Covid pandemic.

That's not to say there aren't cracks in the labor market, as most of the job openings were concentrated in the "professional and business services" sector, which had fallen by 256,000 openings a month earlier. Excluding that sector, the rate of hiring, quitting, and layoffs all fell from March.

The BLS also noted in a separate release that unemployment rates are higher year-over-year in 200 of the 387 metropolitan areas nationwide and that overall payroll remained essentially unchanged in 379 of those areas.

An employment survey from the National Federation of Independent Business also reported its third consecutive decline, and the number of small businesses reporting job openings they could not fill dropped to the lowest level since May 2020.

"Concerns about rising labor costs increased significantly to the highest reading in the survey's history," NFIB Chief Economist Bill Dunkelberg said in a statement. "Small business owners are facing mounting pressure to retain workers, and many firms are navigating costly new state mandates."