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Employers slowed the pace of hiring and more Americans found themselves unemployed in May, but the softening in the job market wasn’t dramatic enough for the Federal Reserve to accelerate its timetable for cutting rates, forecasters say.
The U.S. added 139,000 jobs in May, down from 147,000 in April, as private employment rose at the slowest pace since October and the federal government shed 22,000 jobs, according to a report Friday from the Bureau of Labor Statistics.
An estimated 7.24 million Americans were unemployed in May, up 71,000 from 7.17 million in April. But the unemployment rate held steady for the third month in a row at 4.2 percent.
Cracks are appearing in the job market, but it’s not crumbling, Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said in a note to clients Friday.
“The labor market is slowing, but the pace of the slowdown remains too gradual for [Fed policymakers] to ease policy at its next two meetings, given its desire for greater clarity on the scale of the uplift to inflation from the new tariffs,” Tombs said.
The CME FedWatch tool, which tracks futures markets to gauge investor sentiment of the probability of future Fed moves, on Friday put the odds of a September rate cut at 60 percent. That’s down from 74 percent on Thursday and 96 percent on May 6.
Although inflation is nearing the Fed’s 2 percent goal, Fed policymakers say they need time to assess the impacts of the Trump administration’s policies in areas including tariffs, immigration, taxes and regulation.
In the meantime, elevated mortgage rates and high home prices are hindering home sales, despite rising inventories. Demand for purchase loans is down 10 percent from a 2025 peak seen in early April — even after accounting for seasonal factors, according to surveys of lenders by the Mortgage Bankers Association.
Job growth trending down
While May payroll growth came in slightly above economists’ projections for net growth of 126,000 jobs, the Bureau of Labor Statistics (BLS) revised it previous estimates for job growth in March and April down by 95,000 jobs.
The BLS now estimates the net gain in March payrolls at 120,000 — 65,000 fewer jobs than the original estimate of 185,000 — while 30,000 jobs were knocked off the original estimate that payrolls grew by 177,000 jobs in April.
Samuel Tombs
The health care and social care sector supported growth in private payrolls in May, but employment in sectors involved with transporting and selling imported goods is “clearly trending down,” Tombs said.
Federal government payrolls fell by 22,000 in May, bringing the cumulative drop this year to 59,000.
“This is mostly due to the hiring freeze, which is preventing many departing workers from being replaced, rather than active job cuts,” Tombs said. “We expect federal employment to continue to fall by 10-to-20K every month for the rest of this year, though a faster pace is likely in September or October, when workers who took the offer of six months pay followed by redundancy earlier this year fall off the payroll.”
7.24 million Americans are unemployed
The 71,000 new additions to the ranks of the unemployed were just short of the level that would have lifted the unemployment rate to 4.3 percent, but short-term movements “are mostly noise” anyway because of sample size, Tombs said.
“We continue to expect the [unemployment] rate to increase to 4.8 percent by the end of this year, but the upturn probably won’t gather pace until Q3, given that layoff indicators are continuing to trend up only gradually,” Tombs said.
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