US job growth slows in May; unemployment rate steady at 4.2%

WASHINGTON - US job growth slowed in May amid headwinds from tariff uncertainty, while the unemployment rate held steady at 4.2 per cent, potentially giving the Federal Reserve cover to delay resuming interest rate cuts for a while.

Non-farm payrolls increased by 139,000 jobs in May after rising by a downward revised 147,000 in April, the Labour Department’s Bureau of Labour Statistics said in its closely watched employment report on June 6.

Economists polled by Reuters had forecast 130,000 jobs added after a previously reported 177,000 rise in April. Estimates ranged from 75,000 to 190,000 jobs.

The unemployment rate remained at 4.2 per cent for the third straight month.

The economy needs to create roughly 100,000 jobs per month to keep up with growth in the working-age population.

That number could decline as President Donald Trump has revoked the temporary legal status of hundreds of thousands of migrants amid an immigration crackdown.

Much of the job growth this year reflects worker hoarding by businesses amid Mr Trump’s flip-flopping on tariffs, which economists say has hampered companies’ ability to plan ahead.

Opposition to Mr Trump’s tax-cut and spending Bill from hardline conservative Republicans in the US Senate and billionaire Elon Musk adds another layer of uncertainty for businesses.

Employers’ reluctance to lay off workers potentially keeps the US central bank on the sidelines until the end of the year.

Financial markets expect the Fed will leave its benchmark overnight interest rate unchanged in the 4.25 per cent to 4.5 per cent range in June, before resuming policy easing in September.

Mr Peter Cardillo, chief market economist at Spartan Capital Securities, said: “Payrolls came in a little higher than consensus and more than I was looking for, but basically with the exception of hourly wages, the report really doesn’t indicate that the Fed would be ready to do anything to help out the labour market.”

Mr Brian Jacobsen, chief economist at Annex Wealth Management, also said the rise in payrolls was better than expected, but they were revised significantly lower in the previous months.

“The diffusion index for manufacturing was abysmally low, showing that payroll gains are concentrated while losses are widespread. On its face, this shows an economy that is holding up under the weight of a trade war, but the details show plenty of cracks forming,” he said.

The advance in payrolls reflected strength at service providers, including healthcare and social assistance as well as leisure and hospitality. But industries that are more exposed to tariffs flashed warning signs.

Manufacturing payrolls dropped 8,000 in May, the most in 2025, while employment growth in transportation and warehousing rose slightly after declining in each of the prior two months.

Another major question for economists and policymakers is the extent to which Mr Trump’s efforts to cut back on government spending will take a toll on employment. The federal government shed 22,000 jobs in May, the most since 2020.

Economists contend that at least half a million US jobs could be on the line as federal spending cuts spread to contractors, universities and others who rely on public funding.

The participation rate – the share of the population that is working or looking for work – fell to a three-month low of 62.4 per cent in May. The rate for those between the ages of 25 and 54, known as prime-age workers, also declined.

Most megacap and growth stocks rose in early trading after the stronger-than-expected jobs report calmed investors.  

The US dollar was last up 0.5 per cent against a basket of currencies, while the Nasdaq and S&P 500 futures were each up about 0.8 per cent.

Futures markets pared the chance of a Fed rate cut in September to 63 per cent, down from about 76 per cent prior to the data.

The yield on benchmark US 10-year notes was last up 7.7 basis points on the day at 4.472 per cent. REUTERS, BLOOMBERG