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June 6, 2025

Payroll employment rose a tepid 139,000 in May, after a downwardly revised 147,000 in April. Gains in private sector employment offset a small decline in public sector payrolls. A drop of 22,000 in federal payrolls was almost completely offset by 21,000 increases in local payrolls. It is still too early to see the full effects of earlier layoffs in the federal government as many of those workers took buyouts or went on administrative leave. Much of the weakness in federal payrolls in May reflects retirements and a freeze on seasonal hires.

More than 90% of all job gains in May were in only two sectors. Healthcare and social assistance rose by 78,300 jobs, while leisure and hospitality added 48,000. Finance added 13,000; there were small gains elsewhere in the service sector.

Professional business services dropped by 18,000. All those losses were temporary workers who are easier to cut during periods of elevated uncertainty. We lost nearly 4,000 workers in scientific research and development. That reflects a freezing of government contracts, notably to research institutions.

The goods sector was mixed. Construction added 4,000, while manufacturing shaved 8,000 jobs. Parts shortages have picked up, which is idling production. Escalating input costs are another hurdle, given steel and aluminum tariffs, which have been in effect since early March. Research on the 2018-19 steel tariffs revealed that the 1,000 jobs saved in the steel sector were at the expense of a loss of 75,000 other jobs in manufacturing. The tariff on steel and aluminum doubled to 50% on June 4. 

Average hourly earnings jumped 0.4%, a bit higher than expected. That translates to a 3.9% gain from a year ago, the same as the upwardly revised pace in April. Hours worked held steady at 34.3, well off the peaks we saw emerging from the pandemic but close to 2019 levels.

Separately, the unemployment rate held steady at 4.2%, but for the wrong reason. The participation rate fell to 62.4% from 62.6%. That is the lowest level since February. Women over 55 drove that decline along with prime-age (25�54-year-old) men. Younger baby boomers have been tapping their Social Security benefits early on fears they might be cut in the future.

Household employment much worse

Employment as measured by the Household survey, which captures more of the self-employed, fell by 696,000. The last time we saw a drop like that was in February, the weakest month for payroll gains so far this year. That suggests we could be at risk for downward revisions.

The ranks of the newly unemployed rose by 264,000 to 2.45 million. That the highest total since August 2024 and the largest monthly gain since February 2023. The silver lining is that the ranks of the long-term unemployed dropped.  

The flow of those who went from employed to unemployed surged by nearly one million workers. That is the largest since April 2020 and was split between men and women leaving the labor force. We had not seen a number that large prior to the pandemic. The data only goes back to 1990. The current number is too large in and of itself to suggest that all those workers are retiring.

The ranks of those out of the labor market, in school or training, hit the third highest level since 2003 when the series started. The number of workers who dropped out of the labor force to increase their training tends to rise as the labor market weakens. The number of job leavers fell, which is another sign of a slowing labor market. People tend to stay put when they fear they can’t replace their current job as easily. 

The number of those accepting part-time instead of full-time work declined. However, the ranks who were forced to accept part-time instead of full-time for economic reasons increased. The number of people forced to cut back on their hours due to economic slack fell as multiple job holders declined.

Those out due to parental leave hit its highest May level on record. Birth rates are down but the share of the workforce forming households is extremely high. Millennials and Generation Z � those born in 1982 or later � now account for 67% of the labor force.

Those out unable to work due to bad weather was the highest for the month of May since 2006. Storms caused floods and tornados across much of the country during the month.

The stress measure of unemployment, which includes discouraged and marginally attached workers, was unchanged at 7.8%. That is nearly one full percentage point above the level we saw in February 2020, prior to the onset of the pandemic.