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The U.S. labor market is expected to have downshifted in May, with Friday’s jobs report likely to show the slowest pace of hiring since the start of the year — offering the clearest signal yet that employers are pulling back amid rising economic headwinds and growing risk aversion.
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May’s jobs report from the Bureau of Labor Statistics is expected to deliver the weakest employment gains of the year so far. Economists surveyed by FactSet (FDS-0.36%) are forecasting that employers added 125,000 jobs last month, a significant drop from the stronger-than-expected 177,000 jobs added in April and well below 2025’s monthly average.
If the numbers come in as predicted, the report would mark the slowest pace of hiring since 2023 and could intensify concerns about the economy’s momentum heading into the second half of the year.
The unemployment rate is projected to hold steady at 4.2% (for the third-straight month), and average hourly earnings are expected to climb 0.3% month-over-month. Still, the tone of the labor market appears to be shifting: from resilient to reluctant. And the unemployment number may mask deeper signs of weakness, especially outside the health care sector, which has accounted for a disproportionate share of 2025’s job gains (as much as 40% of all jobs this year).
As a whole, the jobs report comes amid mounting signs that businesses are tightening their belts. Private payrolls rose just 37,000 in May, according to ADP, sharply missing expectations and marking a continued deceleration from earlier in the year. Weekly jobless claims have crept up to an eight-month high, and recent earnings calls and announcements have suggested a more defensive hiring stance.
Multiple forces appear to be dragging on hiring activity — but namely: economic uncertainties linked to trade tensions and high tariffs implemented by the Trump administration.
“The May jobs report will likely indicate that labor market dynamics slowed last month as elevated policy uncertainty, tariffs, and reduced immigration flows weighed on employment growth,” EY senior economist Lydia Boussour wrote in a note.
Preston Caldwell, the senior U.S. economist at Morningstar (MORN-0.74%), said, however, that “it’s too early for tariffs to be having much impact on labor markets” because there’s an inevitable lag and tariffs didn’t show up in any significant way in the April jobs report. Still, from persistent inflation to trade tensions and tariffs, businesses face a murkier environment than they did earlier in the year — and are proceeding more cautiously.
“The latest jobless claims data are signaling looser labor market conditions,” Oxford Economics lead analyst Nancy Vanden Houten wrote in a note to clients.
Unemployment claims are also trending upward, adding to the picture of a labor market losing steam. Weekly jobless claims rose to 247,000 in the final week of May — the highest level in eight months — according to the Labor Department. And elsewhere, the labor market is fraying. Employers such as Procter & Gamble (PG-0.29%) and Microsoft (MSFT-0.92%) have announced thousands of job cuts in recent weeks, citing cost pressures and fading consumer demand.
Federal Reserve Chair Jerome Powell and his colleagues at the central bank have signaled that they’ll hold interest rates steady, despite pressure from President Donald Trump (who has called for interest rate cuts — repeatedly). The Fed likely won’t react to just a single month’s report, but a string of cooler data could strengthen the case for rate cuts later this year.
