Flash Macro: U.S. Jobs

How are we thinking about the May 2025 U.S. jobs report?

U.S. Nonfarm Payroll growth proved resilient but uninspiring in May, as just two sectors generated fully 96% of job growth, masking malaise elsewhere. Furthermore, wage growth trends reaccelerated somewhat, underscoring that the labor market remains tight, with new pressures emerging as net immigration fades.

First, the report revised down job growth in March-April by fully -95k, so the underlying trend now looks softer. Secondly, as mentioned above, just two sectors – Healthcare/Education and Travel/Leisure generated fully 96% of job growth in May. Some notable sectors where we are seeing softer trends include government (-1k, now clearly having slowed from a run-rate around 40k/month in 2024), manufacturing (-8k), professional/business services (-18k), and retail (-7k).

While the job growth internals were lukewarm, the wage trends were hotter. Average hourly earnings accelerated to +3.9% y/y, well above consensus (+3.7%). Prior month AHE was also revised higher to 3.9% from 3.8%.

Overall, the trends we see in this report look consistent with our bigger picture for the U.S. economy. Growth is moderating but not halting and is now supported by a narrower set of drivers including consumer services, AI capex, and broader infrastructure investment trends. Meanwhile, however, the labor market is still fundamentally tight: the unemployment rate is 4.2% today and has been pinned in the low-4% range for the past year. Slower net migration means that very little job growth is needed to hold unemployment at low levels. To us, this continues to add up to a backdrop where the Fed’s next move is still more cutting, but it will not be in a rush to do so. We continue to embed two cuts late this year. Meanwhile, any softness in inflation after tariffs pass through should set the table for more aggressive cuts in 2026.