Kiplinger Jobs Outlook: Gains Stay Strong, but Still Narrowly Focused
In May, 58% of jobs added were in just food service and local government.
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172,000 jobs were added in May, the third consecutive strong monthly gain. March and April gains were revised up to 214,000 and 179,000, respectively, adding to the sense of labor market recovery after 2025 saw hiring nearly stall, with just 10,000 jobs added on average each month. This indicates that the economy is still doing OK, despite the rise in energy prices caused by the Iran war. Total hours worked rose for most industries.
But job growth continues to be narrow. 100,000 of the total gain in May occurred in just two sectors: food service and local government. Actual local government hiring patterns may not conform to expected seasonal adjustments in any given year, which can cause spikes in the data. Job gains in March and April were narrow, as well: In March, nearly half were in health care and social assistance, while a third of April’s gains came from retailers and e-commerce delivery. On the upside, the narrow base of hiring each month is rotating among different sectors.
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Sectors showing weakness included nondurable goods manufacturing, state government education, plus finance and insurance, which has shed 71,000 jobs since the beginning of the year. Federal employment edged up after declining for 15 consecutive months. It is still down by 331,000 jobs since its peak in February 2025. State government education employment decreased by almost 11,000.
The unemployment rate was unchanged at 4.3% for the third consecutive month. Weekly initial unemployment claims rose in the latest week, but remain low overall. The labor force grew by a small amount as more potential workers started to look for jobs.
Average hourly earnings gains continue to ease, gradually, rising 3.4% over the past 12 months, and 3.6% for production workers (blue-collar and non-administrative employees). The more accurate quarterly Employment Cost Index, which showed 3.4% wage growth for the 12 months ending in March, has also shown a moderating trend in pay gains.
The robust jobs reports in March through May should dispel concerns at the Federal Reserve that the economy might be weakening. Bond yield rates rose a small amount after the May report, on concerns about whether the economy is strengthening too much, and whether the Fed might raise rates later. All eyes will be on the new Fed chair, Kevin Warsh, at his first press conference on June 18.
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