U.S. Payrolls Surge 139,000 in May, Unemployment Drops to 4.2%

• The U.S. economy added 139,000 nonfarm payrolls in May, exceeding expectations of 126,000, while the unemployment rate remained steady at 4.2%, signaling labor market resilience despite new tariff policies.
• Average hourly earnings rose 0.4% month-over-month and 3.9% year-over-year, surpassing forecasts, but the labor force participation rate fell slightly to 62.4% from 62.6%.
• Recent data, including a downward revision of 95,000 jobs for March and April, a weak ADP report of 37,000 private sector jobs, and rising unemployment claims, points to emerging slowdowns in the labor market.

The U.S. labor market displayed resilience in May, adding 139,000 nonfarm payrolls, surpassing economists’ expectations of 126,000, according to data released on Friday by the U.S. Bureau of Labor Statistics. Despite President Trump’s new tariff policies introducing economic uncertainty, the unemployment rate remained steady at 4.2%, consistent with April’s figure. However, revisions to prior months revealed a softer labor market, with March and April data adjusted downward to reflect 95,000 fewer jobs than initially reported, including April’s revised figure of 147,000 jobs added compared to the original 177,000.

Wage growth provided a bright spot, with average hourly earnings rising 0.4% month-over-month and 3.9% year-over-year, exceeding forecasts of 0.3% and 3.7%, respectively. This uptick in wages suggests persistent inflationary pressures, which could influence Federal Reserve policy decisions. However, the labor force participation rate dipped slightly to 62.4% from 62.6%, signaling a marginal decline in workforce engagement.

Recent data points to emerging cracks in the labor market’s strength. ADP’s report on Wednesday indicated private sector job growth slowed to 37,000 in May, the weakest in over two years. Additionally, weekly unemployment benefit filings on Thursday reached their highest level since October 2024, while continuing claims approached a four-year peak. These indicators suggest a potential slowdown, aligning with broader economic concerns as Trump’s tariffs reshape trade dynamics. The labor market’s ability to maintain momentum amidst these headwinds will be critical for sustaining consumer confidence and economic stability in the months ahead.

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