Jobs report recap: US added 172,000 jobs in May, far more than economists expected

Based on May's strong job growth and prior revisions, it's looking like a better time to be a job seeker. Leisure and hospitality, government, and healthcare had a solid month of job creation, unlike financial activities, which lost jobs. Unemployment is still low, and labor force participation was unchanged at 61.8% from April to May.

"Friday's jobs report was much stronger-than-expected and shows that the labor market is turning a corner after a rough past 12 months driven by fears of AI and uncertainty over geopolitics and tariffs," Glen Smith, chief investment officer at GDS Wealth Management, said in commentary.

The new report will be helpful in the Federal Reserve's coming interest-rate decision.

"Hiring remains narrow, but the headline strength is enough to keep the Fed focused on inflation," Olu Sonola, the head of US economics at Fitch Ratings, said in commentary.

Several jobs experts described this as a blowout report, including Lindsay Rosner, head of multi sector fixed income investing at Goldman Sachs Asset Management.

"We've gained more and more confidence in the last prints that the Fed doesn't have to be worried about the labor market," Rosner said.

Healthcare, the powerhouse behind job growth over the last few months, has been dethroned as the workforce's jobs engine. Leisure and hospitality added a whopping 70,000 jobs in May, including 48,000 alone in food services and drinking places. Local government also saw a strong month, and healthcare still chugged along.

BLS said healthcare's gain was still in line with the average monthly growth of 38,000 from the previous 12 months.

Meanwhile, the white-collar wipeout continued: Those service industry, healthcare, and government roles offset job losses or stagnation in several white-collar sectors. Financial activities took the biggest hit, and the information sector — which includes parts of the tech industry — also lost payrolls.

EY economists Gregory Daco and Lydia Boussour expect job creation of 50,000 last month, which they said would be in line with the breakeven rate, or the rate needed to keep unemployment steady. April added 115,000 jobs, which could be revised in the new report, as is usually the case for earlier estimates.

"The step down reflects some payback from earlier weather-related strength and a still-cautious hiring backdrop," the EY economists said. "We expect the unemployment rate to edge higher to 4.4%, consistent with a labor market where labor demand and supply have slowed in sync."

Workplace observers will also be looking at how wage growth evolved. "With workers opting to stick with their current roles and employers keeping a tight leash on new hiring, how consumers manage the rising cost of living will be largely dictated by whether these wages can keep pace," said Mark Hamrick, senior economic analyst at Bankrate.

Priya Rathod, workplace trends editor at Indeed, said small businesses can offer graduates opportunities that large companies may not, such as a close mentor.

"It can help give you access to things that you wouldn't be able to engage in or projects you wouldn't be able to engage in at larger companies," Rathod said.

It can also be an opportunity for new grads to show off their AI skills. "The smallest businesses don't have the depth of expertise in AI," billionaire entrepreneur Mark Cuban recently said on X. "They need the help. Kids coming out of college have that expertise."

Gusto, an HR services platform for small- and medium-sized businesses, said in its latest report that small businesses added 83,900 last month, more than the 12-month average of 54,100. Most sectors, all US regions, and all company sizes — from 1 to 4 employees up to 20 to 49 employees — had job growth.

Effects of the Iran war have shown up in recent inflation readings and gas prices, but less so in the job market. Still, the war has added to the ongoing economic uncertainty and might make employers reluctant to hire.

"The Middle East conflict is reinforcing a more cautious hiring stance," said EY economists Gregory Daco and Lydia Boussour. "Higher energy prices are lifting input and transportation costs, weighing on margins, and adding to inflation pressures. At the same time, global supply chain strains are re-intensifying, with renewed frictions in shipping, delivery times, and inventory management."

If a deal between the US and Iran isn't finalized soon, opening the Strait of Hormuz, that could mean even higher gas prices, potentially leading to a recession.

"We're drawing down inventory and the strategic petroleum reserve is starting to fade, and if we don't get a resolution, if the strait doesn't open, if we don't get more production soon, then I think prices are gonna start to jump again," said Mark Zandi, chief economist of Moody's Analytics, in a "Bloomberg: Balance of Power" video on May 29.

The price of a barrel of crude oil isn't at the level it would need to be to push the economy into a recession. He said simulations show it would need to be $125 a barrel, and it's under $100 at the moment. Zandi said $5 a gallon of gas or a bit over could "be enough to push the fragile economy into recession."

While the Bureau of Labor Statistics report is the gold standard, other reports can give people a sense of how the job market has changed, including the monthly report from payroll services company ADP.

The latest report, using the firm's own employment data, showed private-sector employment increased by 122,000, surpassing the expected 118,000. Business establishments of all sizes added jobs. Most industries had job growth, but the natural resources and mining industry and the information industry lost jobs.

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

Jerome Powell ended his eight-year tenure as Federal Reserve chair in May, though he plans to remain as a governor. He said at his last Federal Open Market Committee press conference as chair in April that he will stay on "for a period of time to be determined," though his term ends in 2028.

Kevin Warsh was confirmed as his successor and will lead his first Federal Open Market Committee meeting as chair in mid-June. The jobs report is a big factor in the committee's interest rate decisions.

CME FedWatch, which highlights the likelihood of where interest rates will land based on market activity, showed before the new jobs report an overwhelming chance the Fed keeps interest rates steady again.

"The Federal Reserve exists for one fundamental purpose: to foster the economic conditions in which American families and businesses can thrive — stable prices, a strong job market, and a financial system they can depend on," Powell said at his last Federal Open Market Committee press conference as chair in April.

"Every decision we make — whether about interest rates, or regulatory and supervisory matters, or other issues — is made in service of that purpose."

As investors await the May jobs report and its implications for new Fed chair Kevin Warsh's first FOMC meeting in two weeks, stock futures are mixed.

The Dow Jones is set to climb around 108 points, or 0.2%, at the open, while futures for both the S&P 500 and the Nasdaq are lower, set to decline 0.3% and 0.8%, respectively at the open.

"Softer-than-expected data would be unlikely to ease inflationary pressures stemming from the Middle East crisis or soften the stance of Federal Reserve hawks," Ipek Ozkardeskaya, Senior Analyst at Swissquote wrote in a morning email.

"Stronger-than-expected figures, on the other hand, could fuel risk appetite on the view that the economy remains strong enough to withstand higher interest rates," she wrote.

The economy added 115,000 jobs in April, beating expectations and ending almost a year of bouncing back and forth each month between net job gains and losses.

Cory Stahle, senior economist at the job platform Indeed, said it was a good report overall, with stable unemployment of 4.3% as an encouraging sign, but he doesn't think it's enough to ease concerns of uncertainty in the job market.

"It's too early to start celebrating and saying, 'Hey, we're at this turning point. Looks like the economy is all good,'" he said. "It's still not clear how some of these structural things are going to play in and also how the conflict in Iran is going to pan out."