Kiplinger Jobs Outlook: Job Creation Is Slowing, but Better Than Expected

Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.

Job growth of 139,000 in May was better than expected, but downward revisions in March and April suggest that the slowing trend will continue. Hiring gains primarily occurred in health care and leisure and hospitality. But evidence of a longer-term, gradual slowing trend was plentiful:

• Downward revisions of past months’ job creation often happen when an economic slowdown is emerging, since government statisticians initially have to make some assumptions about what late-arriving data will show.
• Payroll growth has been narrowing. Manufacturing, retail, professional and business services, temporary employment and the federal government sectors all showed declines. The downturn in machinery manufacturing employment could reflect worsening export orders. Federal employment is down by 59,000 over the past four months, and the contraction will likely continue as those who have been put on leave are officially let go, if their jobs aren’t reinstated by the courts.
• Though the unemployment rate was unchanged at 4.2%, the number of unemployed people has been steadily rising by small amounts since February. Initial unemployment claims bounced up in the second half of May.

Expect all the consumer and business uncertainty to delay hiring plans. Hiring is often deferred when consumers are concerned about losing their jobs, or when businesses don’t know if there will be a positive return to investing in additional workers. Prior to the tariffs, we expected monthly job growth of about 150,000 new positions to continue. Now, that could fall to around 100,000, if enough employers decide to hold off on hiring while they sort out the effects of the new tariffs on both their businesses and on the economy as a whole. When hiring plans get put on hold, the unemployment rate tends to rise. We expect it to hit 4.5% by the end of the year, up from its current 4.2%.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

The uncertainty regarding tariffs and the looming economic slowdown will likely restrain pay gains. Annual wage growth stayed at 3.9% for the sixth consecutive month in May. It will probably ease to 3.5% by December.

The May jobs report is likely to keep the Federal Reserve from cutting interest rates in the near future, because the slowing trend is still gradual. The Fed would also like to see wage growth start to come down, since it remains a threat to the Fed’s goal of achieving 2% inflation.

Related Content

• When Is the Next Jobs Report?
• Kiplinger's Economic Calendar for This Week
• When Is the Next Fed Meeting?
• Kiplinger's Interest Rates Outlook
• When Is the Next CPI Report?