The American labor market produced its strongest hiring signal in over a year last month, then immediately handed economists a reason not to celebrate it. The Bureau of Labor Statistics reported Friday that the U.S. economy added 172,000 jobs in May — nearly 70,000 more than analysts had projected and the third consecutive month of gains above 100,000, a run of consistency the labor market has not managed since early 2024.
Unemployment held at 4.3%. Upward revisions to March and April added a combined 93,000 jobs to the prior two months’ tallies, lifting the three-month average to 188,000 and reframing what had looked like a sputtering recovery into something more durable. The headline numbers were, by any measure, good.
What sat beneath them was harder to square. Annual wage growth decelerated to 3.4% in May from 3.6% the prior month — and with inflation running at a three-year high driven in large part by war-related energy and supply costs, the May Consumer Price Index figures due next week are projected to show real wages running nearly a full percentage point below inflation. The labor market is adding jobs at a pace that would have been welcome a year ago. It is doing so while the median worker’s purchasing power continues to erode.
Joe Brusuelas, chief economist at RSM US, framed the tension directly: accelerating job creation is difficult to celebrate, he said, when real wages are falling and the median worker is struggling to meet basic financial obligations.
The composition of May’s gains carried its own signals. Leisure and hospitality accounted for 70,000 new positions — more than double April’s sectoral gain — while government employment added 52,000 jobs, with local administration outside of education driving the bulk of that figure. Healthcare and social assistance, which has functioned as the labor market’s primary stabilizer for the better part of two years, contributed 47,200 positions. The broadening of gains beyond healthcare was noted by analysts as a potentially meaningful development, though several flagged the leisure and hospitality surge and the government hiring jump as possible artifacts of seasonal adjustment methodology or what some described as a “World Cup effect” tied to stadium construction, tourism infrastructure, and hospitality staffing ahead of the tournament.
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The year as a whole looks markedly different from 2025.
Fewer than 10,000 jobs were being added per month for stretches of last year, a pace that prompted sustained concern about whether the labor market was entering contraction.
The year-to-date monthly average now stands at approximately 114,000 — not a boom by the standards of 2021 and 2022, when post-pandemic hiring produced monthly gains that regularly exceeded 400,000, but a stabilization that economists have been waiting to confirm for months. Guy Berger, chief economist at small-business payroll firm Homebase, said the job market was “moving in the right direction for the first time in a while” — warming, in his framing, without yet running hot.
The war has complicated the picture throughout. Sustained conflict in the Middle East has kept fuel costs elevated, compressed consumer sentiment, and introduced cost pressures into supply chains that feed through to the prices of goods and services well beyond energy. Consumer confidence has fallen to levels that sit uneasily alongside an employment picture that, taken in isolation, would suggest relative economic health. Americans who spent years absorbing post-pandemic inflation are now absorbing a second wave of price pressure, and the psychological effect of that accumulation is showing in sentiment data even as payrolls expand.
Summer is adding to the burden. Electricity prices and warmer projected temperatures are expected to drive household cooling costs up by more than 10% this season, hitting household budgets at the same time that fuel, grocery, and consumer goods costs remain materially above pre-war levels.
The Federal Reserve, which has held rates steady as it monitors inflation’s trajectory, will receive the May jobs report as evidence that the labor market has not broken under the pressure of the past year — but also as confirmation that wage growth is not keeping pace with price increases, a combination that restrains consumer spending and could limit the recovery’s durability if sustained.
For now, the numbers say the economy is hiring. What they also say, buried a few lines deeper, is that the people being hired are not keeping up with the cost of being alive in the economy that employs them.