In May, job growth in the United States showed signs of slowing down, influenced by trade policies and rising tariffs. The latest employment report revealed that the U.S. economy added 139,000 jobs, slightly exceeding forecasts but indicating a cooling trend. The unemployment rate remained steady at 4.2%, narrowly avoiding a rise to 4.3% when rounded.
Average hourly earnings saw an increase of 0.4% for the month, marking a 3.9% rise compared to the previous year. This increase contributes to moderate growth in domestic consumption. However, revisions to earlier job data revealed a reduction of 95,000 jobs in March and April, resulting in a net employment change of only 44,000 for those months. This adjustment hints at a potential downturn as the negative impacts of trade policies become more apparent.
The Federal Reserve is likely to interpret this report as an affirmation of its current approach to monetary policy. The recent data aligns with the Fed's Beige Book suggestion of a slowing economy, prompting no immediate changes in interest rates for the upcoming meetings in June and July.
Sector-specific impacts were notable, with transportation and warehousing shedding 8,600 jobs, and manufacturing employment falling by 8,000 positions. Goods-producing industries also experienced a reduction of 5,000 jobs. These sectors, typically among the higher-paying ones, are expected to experience further job losses. On average, overall hiring has slowed to 135,000 jobs over the past three months.
While some areas like private education and health care, which are less affected by tariffs, saw job increases, others such as retail, trade, and professional business services experienced declines. Retail and trade jobs decreased by 7,000, professional business services by 18,000, and temporary hiring by 20,000. Government employment was also down, with a notable drop of 22,000 jobs in the federal sector.
The labor force participation rate fell to 62.4%, while the employment-to-population ratio decreased to 59.7%. The median duration of unemployment rose to 9.5 weeks. With a significant decline of 696,000 in the total workforce, concerns are growing over the broader risks to the current economic expansion.
As the U.S. labor market faces these challenges, the steady hiring pace and the potential increase in unemployment suggest a cautious outlook. The Federal Reserve is expected to maintain its current policy stance while awaiting further data on the effects of trade policy changes.
