The US economy added 139,000 jobs in May, slightly more than expected

(CNN) — The long-resilient labor market slowed down a little in May, adding 139,000 jobs, according to Bureau of Labor Statistics data released Friday.

Last month’s job gains, which came in slightly more than expected, marked a retreat from April, which was downwardly revised to 147,000.

The unemployment rate held steady at 4.2%, and wage gains continued to outpace inflation.

Those two numbers on their own — the monthly payroll gain and the unemployment rate — indicate that the US labor market is cooling and not collapsing. However, the guts of the report indicate that fissures may be spreading, some economists warn.

“I don’t want to play Debbie Downer by just reading the headlines and concluding nothing to worry about,” Gregory Daco, EY-Parthenon’s chief economist, told CNN. “In my opinion, we are starting to see an acceleration of labor market slowdown.”

Economists were expecting the economy to have added 130,000 jobs last month and that the unemployment rate held at 4.2%, according to FactSet consensus estimates.

Friday’s report painted a picture of a “steady but cautious” labor market in the face of swelling economic uncertainty, said Ger Doyle, regional president for North America at employment firm ManpowerGroup.

President Donald Trump’s sweeping policy moves, especially a whipsaw approach to massive import tariffs, have driven consumer sentiment lower, rattled markets and clouded businesses’ lines of sight.

“This is not a freeze, but a temporary chill,” Doyle wrote in commentary Friday. “Employees are staying put, employers are holding steady, and everyone is waiting for clearer signs.”

While the pace of job growth remains fairly solid, this year’s gains were even softer than initially thought, Friday’s report showed.

March’s and April’s gains were revised down by a combined 95,000 jobs, resulting in employment increasing by an average monthly clip of nearly 124,000 jobs this year.

That may be above the 100,000 threshold (below which would be an indicator of potential weakness), but, excluding recession years, it’s the lowest average monthly gain for January through May in the past 30 years, an analysis of BLS data shows.

‘Waiting for the other shoe to drop’

In the years following the economy-upheaving pandemic, job growth has slowed, but it has not collapsed. The gains have remained solid enough to fuel consumer spending and put the economy on track for a “soft landing” of reining in inflation without triggering a recession.

May’s jobs report marks the 53rd consecutive month that the US economy has added jobs, the second-longest streak of employment expansion on record (behind the post-Great Recession/pre-Covid market of late-2010 to early 2020), BLS data shows.

However, economists have warned that the Trump administration’s frenetic trade policy and other actions — including drastic cutbacks to federal spending, layoffs of government workers, and reductions in immigration — not only threaten those soft landing odds but also heighten recession risks.

“The May jobs report still has everyone waiting for the other shoe to drop,” Daniel Zhao, Glassdoor’s lead economist, wrote Friday. “This report shows the job market standing tall, but as economic headwinds stack up cumulatively, it’s only a matter of time before the job market starts straining against those headwinds.”

Not knowing the size and breadth of tariffs (but knowing they very well might change), for example, has hindered businesses’ abilities to operate and plan: They don’t know what their costs will be in three months, let alone three days from now; and it’s even more unclear whether consumers will keep spending.

Outlooks have quickly become opaque.

Scores of the largest public US companies have suspended their forecasts for future earnings, temporarily blinding analysts and investors. And small businesses that have little room for error have been left frozen in their tracks.

Although layoffs remain low, hiring has slowed and workers are staying put, slowing the all-important “churn” behind a healthy labor market.

“The labor market is revealing fragility,” Diane Swonk, chief economist at KPMG, told CNN in an interview. “There’s no margin for error when you’ve got a low pace of hiring, a low pace of quits.”

DOGE effects spread

Friday’s jobs report showed that opportunities dwindled for many workers. Almost the entirety of the month’s employment gains (nearly 91%) was concentrated in just two sectors: health care and social assistance, and leisure and hospitality.

Half of all major industries added jobs in May (or lost jobs, if one’s a glass-half-empty type of person), according to the BLS’ employment “diffusion index.” Across manufacturing, only 41.7% of industries added jobs.

“When manufacturing is losing jobs and the diffusion index suggests those losses are broad, it’s more indicative of an industry-wide phenomenon, and could warrant concern for the broader economy,” Elizabeth Renter, NerdWallet’s senior economist, wrote in a note Friday.

Overall last month, the manufacturing sector lost 8,000 jobs.

The largest job losses in May, however, occurred in the federal government, which saw its employment bloodletting worsen due to the Trump administration’s efforts to slash the federal workforce and gut agencies and spending.

The federal government has posted job losses for four consecutive months, dropping 13,000 jobs in February, 11,000 in March, 13,000 in April, and another 22,000 in May.

There’s more to come on that front. The bulk of the losses to date likely reflect early retirements versus Department of Government Efficiency-driven layoffs, Swonk said. The losses from the latter could be spread out over many months to come: Not all federal workers were laid off immediately and other actions are being challenged in court.

The federal workforce represents a tiny share of overall employment; however, Trump’s federal cuts appear to causing collateral damage in the private sector, Swonk said, noting job losses at scientific labs.

BLS data shows that scientific, research and development services lost 3,900 jobs in May, which followed a 4,400-job loss in April. On a year-to-date basis, that industry is running in the red for the first time since the Covid-19 pandemic.

A ‘good enough’ report to keep the Fed on hold

The BLS’ monthly snapshot of the labor market is composed of two surveys: One of businesses (which measures employment, hours and earnings), and one of households (which provides demographic data and feeds into the all-important unemployment rate).

While the household survey tends to have more volatility, May’s readings from that particular wing of the report rang more alarm bells than usual.

The unemployment rate didn’t budge, but more workers left the labor market. The labor participation rate fell by 0.2 percentage points to 62.4%. And while the labor force losses were broad-based, they were more heavily concentrated in women over the age of 55 and men of prime working age (25 to 54), Swonk said.

The household survey also indicated that more people who were not working were instead in school or training.

“That tends to be something that happens when the labor market weakens,” she said.

But for now, the labor market is “good enough” and “strong enough” to keep the Federal Reserve in its holding pattern as higher tariffs have reignited concerns about inflation, Wells Fargo economists wrote in a note to clients Friday.

Key inflation data is due out next week with the release of the Consumer Price Index and Producer Price Index on Wednesday and Thursday, respectively.

“That said, with both the soft and hard data on the labor market showing employment conditions softening, we still expect [Fed policymakers] to be cutting later this year,” they wrote.

Trump, however, reiterated Friday that he’d like to see interest rates go down sooner than later. In posts on his Truth Social site, Trump wrote that the Fed’s current benchmark rate is “costing our country a fortune” and that “borrowing costs should be MUCH LOWER!!!”