Labor Market Delivers Mixed Signals Despite Strong Payroll Gain

Payrolls Top Forecasts, but Labor Participation Slips as Federal Hiring Lags

Hiring in May modestly exceeded expectations, signaling continued labor market resilience despite economic concerns over tariffs and tepid growth. The U.S. economy added 139,000 nonfarm payroll jobs, surpassing the Dow Jones estimate of 125,000 but slowing from the revised 147,000 gain in April, the Bureau of Labor Statistics reported Friday.

Healthcare and Leisure Sectors Lift Payrolls, but Federal Jobs Drop Again

The strongest gains came from healthcare, which added 62,000 jobs—well above its 12-month average. Hospitals and ambulatory care services each contributed nearly 30,000 jobs, highlighting ongoing demand in medical services. Leisure and hospitality saw another solid month with a 48,000-job increase, primarily in food services. Social assistance roles grew by 16,000, mostly from family services.

However, federal government employment declined by 22,000 in May, continuing a downward trend that has shed 59,000 positions since January. Manufacturing also weighed on the report, losing 8,000 jobs, while retail trade fell by 6,500, reflecting softer consumer activity.

Unemployment Rate Flat, but Participation Metrics Signal Weakness

The unemployment rate held steady at 4.2%, but underlying participation weakened. The labor force shrank by 625,000, pushing the participation rate down to 62.4% from 62.6%. The employment-population ratio also dropped to 59.7%. The number of Americans unemployed for less than five weeks rose sharply by 264,000 to 2.5 million, indicating recent job losses may be rising.

Long-term unemployment improved slightly, with the number of jobseekers out of work for 27 weeks or more falling by 218,000 to 1.5 million, now representing 20.4% of all unemployed.

Wage Growth Holds Steady, Hours Worked Remain Flat

Average hourly earnings rose 0.4% on the month to $36.24, maintaining a 3.9% annual increase. For production and nonsupervisory employees, wages rose to $31.18. Average weekly hours remained unchanged at 34.3, offering no additional support for income growth through longer workweeks.

Market Outlook: Cautiously Bearish on Labor Momentum

While headline payroll gains topped estimates, the downward revisions to prior months (net -95,000) and declining participation metrics suggest slowing labor momentum. Weakness in government and manufacturing hiring further clouds the outlook. For traders, this report reinforces a cautiously bearish short-term view on labor strength, raising the odds of potential Fed policy adjustments if softness persists.