Weekly Update 06/05/2026: US Job Growth in May Blows Past Expectations
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Domestic Economic News
US job growth topped all forecasts in May and the unemployment rate held steady, offering the clearest sign yet that the labor market may be breaking out of a prolonged period of lackluster hiring. Nonfarm payrolls increased 172,000 last month after upward revisions to the prior two months, according to Bureau of Labor Statistics data out Friday. That marked the strongest three-month advance in more than two years. The unemployment rate was unchanged at 4.3%, and average hourly earnings rose 0.3%. The report suggests the labor market is firming after near-zero job growth last year, despite more recent concerns about rising energy prices that have driven consumer sentiment to a record low. The figures could put more pressure on the Federal Reserve to consider interest-rate increases in order to contain inflation. Treasuries sold off, sending two-year yields up more than 8 basis points to 4.12%. Interest-rate swaps showed that traders boosted their expectations for a Fed rate hike, with markets fully pricing in a quarter-point increase by year-end. The advance in hiring was led by leisure and hospitality, which added 70,000 jobs, the most in more than three years. The healthcare and social assistance sector, which has been the primary driver of job growth over the last year, continued to hire at a firm pace. Nonresidential construction employment rose for a seventh month, likely fueled by strong demand from the data center buildout. A separate report this week showed construction spending on data centers eclipsed $50 billion in April for the first time. The manufacturing sector also added jobs in May. Recent reports have shown a pickup in US factory activity thanks to strong demand from data centers, defense production and broader stockpiling as customers have rushed to get ahead of additional war-related price increases. Employment in air transportation fell by the most since 2020. The BLS said that was “largely reflecting a business closure,” a likely reference to the collapse of Spirit Airlines last month. The report also contained signs of the ongoing impact of artificial intelligence on hiring. Employment in the information sector — which includes software publishers, social networks and web search portals — fell again in May, for the 16th time in the last 17 months. Big Tech companies like Meta Platforms Inc. and Microsoft Corp. are reducing headcount, in part to offset heavy spending on AI. The US economy still faces potential headwinds in the months to come, especially if the Middle East conflict isn’t resolved soon and the Strait of Hormuz remains mostly shuttered, keeping oil prices elevated. In that scenario, consumer spending could come under more pressure as budgets get tighter — especially in lower-income families. A pullback in the stock market could dent spending among wealthier households, and ongoing deployment of AI by businesses could pose a larger threat to hiring trends as the year goes on.
US manufacturing activity expanded in May at the fastest pace in four years, bolstered by a pickup in new orders and production. The Institute for Supply Management's manufacturing gauge rose 1.3 points to 54, according to data released Monday. Readings above 50 indicate growth. The measure has now signaled expansion for five straight months, pointing to renewed vigor in the manufacturing sector amid a surge in artificial intelligence investment, more favorable tax provisions and diminished trade policy uncertainty. New orders growth accelerated to a four-month high, as factory production also gained steam. Part of that strength may also reflect customers trying to stockpile merchandise in an effort to front-run future price hikes. Conflict in the Middle East and the effective closure of the Strait of Hormuz has driven up the cost of oil and other materials. While oil prices have subsided from their peaks, they remain well above pre-war levels. The ISM data indicated materials' costs continued to rise sharply for producers, with the group's price gauge easing some but remaining close to levels not seen since 2022. Sustained cost pressures could mean even higher prices for American consumers. Data out last week showed the Federal Reserve's preferred gauge of inflation rose 3.8% in April from a year earlier -- nearly double the central bank's goal and the fastest pace since 2023. A measure of supplier deliveries held at the highest level since 2022, as war-related disruptions lengthen supply chains. Imports and exports expanded in May, and the group's gauge of inventories rose to a one-year high. ISM's employment gauge improved in May, though it continued to indicate shrinking headcount.
US job openings jumped in April to the highest level in almost two years and layoffs fell, adding to signs the labor market remained resilient even as businesses navigated rising energy costs sparked by the Iran war. Available positions rose to 7.62 million from 6.89 million in March, according to Bureau of Labor Statistics data out Tuesday. The median estimate in a Bloomberg survey of economists called for 6.87 million openings. One sector — professional and business services — accounted for almost the entirety of the increase. The overall number of hires fell to 5.12 million, partly unwinding a surge in March, while layoffs moderated to 1.69 million. The figures suggest labor demand is steadying this year after near-zero job growth in 2025. While vacancies still remain well below the levels seen in the pandemic reopening period, the stabilization could further undermine the case for interest-rate cuts as Federal Reserve officials increasingly discuss the possibility of rate hikes. Even so, surveys suggest businesses and workers remain anxious about the labor market and economic conditions. The share of consumers who said jobs were plentiful fell in May to the lowest since 2021, according to The Conference Board. Small-business hiring plans also remained subdued in April as inflation concerns continued to hang over companies, according to the latest data. The so-called quits rate, which measures the percentage of people voluntarily leaving their jobs each month, fell to 1.9%, matching the lowest since 2020. The report also showed the number of vacancies per unemployed worker, a ratio Fed officials watch closely as a proxy for the balance between labor demand and supply, was little changed at 1 to 1. At its peak in 2022, the ratio was 2 to 1. Recent jobless claims data have shown few signs of widespread layoffs despite some high-profile announcements of job cuts, including from the likes of Meta Platforms Inc., Starbucks Corp., LinkedIn and Walmart Inc.
US service-sector activity picked up in May, even as businesses face the fastest growth in input costs in nearly four years. The Institute for Supply Management’s services index rose to a three-month high of 54.5, according to data released Wednesday. Readings above 50 indicate expansion. Gauges of new orders and business activity both increased, signaling resilient consumer demand. Nearly every service industry reported growth in the month, including wholesale trade, entertainment and recreation, and construction. The only industry reporting a contraction was real estate and leasing. The costs of services and materials for firms, meanwhile, continued climbing. The Iran war has sparked a new wave of inflation, driving up energy and transportation costs and disrupting supply chains around the world. ISM’s prices-paid gauge climbed to 71.3 last month, the highest since August 2022. Businesses may choose to eventually pass those cost increases onto shoppers, who are already seeing higher prices at the gasoline pump and the grocery store. Some companies could also stockpile materials if they’re anxious about the availability of products or costs climbing further. The group’s inventory index swelled in May, matching the highest on record. With rising prices pressuring firms’ bottom lines and Americans’ incomes, there’s a risk of intensifying wariness around hiring. The group’s gauge of employment edged lower and indicated shrinking headcount at service providers for a third straight month.
Employment in the US private sector increased more than expected in May, ADP data showed Wednesday. Private jobs advanced by 122,000 last month, according to the payrolls processing firm. The consensus was for a 120,000 increase in a Bloomberg-compiled survey. The number of jobs added in April was revised down to 105,000 from 109,000. "Hiring was more broad-based in May than we've seen in the last few years," ADP Chief Economist Nela Richardson said. "The labor market continues to show sustained momentum going into the summer hiring season." The services sector added 114,000 jobs last month, led by a 57,000 jump in education and health services, ADP said. The information sector saw a 9,000 drop in roles. Employment in the goods-producing sector grew by 8,000. "The breadth of gains was encouraging, with almost all sectors increasing payrolls during the month," Oxford Economics Senior US Economist Matthew Martin said in remarks emailed to MT Newswires. "Coupled with weak labor supply growth, the strong gains in payrolls would reduce the upside risk to the unemployment rate." Annual wage growth slowed to 6.5% in May from 6.6% in April for job changers, while compensation gains were steady at 4.4% for job stayers, the ADP report showed. "While the full impacts of the war in Iran on the labor market haven't fully fed through, recent labor market data will allow the Federal Reserve to be patient in setting policy and remain on hold until December," Martin said.
Applications for US unemployment benefits rose last week to the highest level since February, potentially reflecting volatility around the Memorial Day holiday. Initial claims increased by 13,000 to 225,000 in the week ending May 30, according to Labor Department data out Thursday. The median estimate in a Bloomberg survey of economists called for 215,000 claims. The report covers the period that includes Memorial Day and aligns with the start of summer break for some schools. The four-week moving average of initial applications for benefits, a metric that helps smooth out volatility, increased to 214,750 — also the highest since February. Despite the pickup in claims, the figures still remain close to historically low levels. Continuing claims, a proxy for the number of people receiving benefits, fell to 1.78 million in the previous week. Looking ahead, a sustained increase in applications for unemployment insurance could indicate higher costs and rising economic uncertainty from the Iran war are beginning to weigh on employers. Continued investment in artificial intelligence has also come at the expense of headcount at some technology companies, driving up layoff announcements in the sector. Separate data out Thursday showed US companies in the tech sector announced 38,242 job cuts in May, the most for any month in nearly two years. Planned cuts in the industry are up more than 65% so far this year compared to the same period in 2025, according to data from outplacement firm Challenger, Gray & Christmas Inc. Before adjusting for seasonal factors, initial claims were little changed. Claims in California, Tennessee and Minnesota increased. Texas and New Jersey posted declines. Separate government data out Thursday showed a sharper slowdown in labor productivity in the first quarter than previously estimated. Output growth was revised lower, and inflation-adjusted hourly compensation fell sharply. Hours worked rose at the start of the year, following a decline in the final three months of 2025. Even so, nonfarm business labor productivity rose 2.8% from a year ago, indicating companies are gradually improving worker efficiency to mitigate costs.
Interest Rate Insight and the Fed
Employment remained stable in recent weeks as inflation continued to rise across much of the country, driven primarily by the impact of war in the Middle East on energy prices, the Federal Reserve said. Overall economic activity increased at a slight to moderate pace in 10 of 12 Fed districts, according to the US central bank’s Beige Book survey of regional business contacts released Wednesday. “Districts noted that energy-related costs tied to the conflict in the Middle East were the primary driver of inflationary pressures, with spillovers into shipping, packaging, groceries and fertilizer,” the Fed said. “Consumer uncertainty and concerns about fuel prices impacting households were noted by several districts.” The report was based on information collected by the Fed’s 12 regional banks through May 27 and compiled by the Kansas City Fed. A jump in energy prices since the start of the war in Iran has sparked concerns about persistent inflation, leading more policymakers to argue they need to keep all options on the table, including tighter monetary policy. Still, many officials have said interest rates remain well-positioned for now.
The report showed that while growth is so far holding up amid higher costs, businesses expressed concern over deteriorating customer sentiment. “Business outlooks for the next six months were reported to have little change in anticipated growth, as elevated uncertainty and signs of weakening consumer spending weighed on sentiment,” the Fed said. The Beige Book also noted that hiring was strongest in the manufacturing sector in several districts, “supported by defense-related activity and rising data-center demand.” Most districts continued to describe a low-hire, low-fire employment landscape. “Hiring remained selective and primarily focused on critical roles or attrition replacement,” the report said. The central bank’s preferred inflation metric increased by 3.8% in the 12 months ending in April — the biggest rise since 2023, according to data released last week by the Bureau of Economic Analysis. Investors expect Fed officials to hold interest rates steady at their June 16-17 gathering, but are fully pricing in a quarter-point increase by March of next year, according to federal funds futures contracts. This month’s policy meeting will be the first led by new Fed Chairman Kevin Warsh.
Impactful International News
Euro-area inflation topped 3% for the first time in more than 2 1/2 years, cementing expectations for an interest-rate hike when the European Central Bank meets next week. Consumer prices rose 3.2% from a year ago in May, up from 3% the previous month, Eurostat said Tuesday. That’s in line with the median estimate in a Bloomberg survey. Core inflation, which excludes volatile items like food and energy, quickened more than anticipated to 2.5%, while the closely watched services gauge jumped to 3.5%. The ECB is expected to deliver its first increase in borrowing costs since September 2023 on June 11, with officials appearing to have concluded that they can no longer wait to respond to the fallout from the Middle East conflict. They’re worried chiefly about workers demanding steep pay rises and firms boosting selling prices, viewing such consequences as probably now inevitable as the war drags on. Most policymakers, however, remain cautious on the path beyond June as growth in the region’s 21-nation economy also takes a hit. Business activity shrank in May at the quickest pace since 2023.
International use of the euro rose slightly in 2025 but stayed well below that of the dollar, highlighting the difficulty of mounting a global challenge to the greenback’s supremacy. Overall usage of the common currency increased to about 20%, the European Central Bank said Tuesday in an annual assessment. It held at the same level in foreign-exchange reserves, still only about a third of the dollar’s allocation. The ECB said international debt issuance in euros hit a record high and the euro led for the first time in the global market for green and sustainable bonds. But it also found a notable drop-off in its use for daily foreign-exchange trading. European officials have sought to chip away at the dollar’s international dominance as Donald Trump’s erratic policymaking and attacks on the Federal Reserve since his return to the presidency dented confidence in the US. ECB President Christine Lagarde has gone as far as discussing a potential “global euro moment,” urging politicians to strengthen the euro’s role so the currency bloc can enjoy more of the dollar’s privileges, including lower borrowing costs. “There is an opening for the euro to enhance its global appeal – provided that European policymakers create the necessary conditions and put words into action,” Lagarde wrote in Tuesday’s report. Economic resilience, legal and institutional integrity, and geopolitical credibility must be reinforced, she said. The report laid out the scale of the task, however. One problem is central banks’ accumulation of gold holdings amid persistent geopolitical tensions. While purchases decreased to about 850 tons from more than 1,000 tons in 2024, they remained elevated, the ECB said. The metal’s share in total official foreign reserves even surpassed that of US Treasuries. But this largely reflected valuation effects, given the soaring gold price, and overall dollar-denominated assets continue to dominate reserves, accounting for 42%. Some countries have also advanced alternative cross-border payment systems, including those based on digital technologies, the ECB said, calling the trend another sign of fragmentation in the international monetary system. The ECB also stressed that the use of China’s renminbi, while still low overall, notably increased in areas such as daily foreign-exchange trading and trade financing, with the Middle East conflict potentially triggering further gains. “Industry experts have suggested that the conflict could serve as a catalyst for an expansion of the renminbi’s role in global oil markets,” it said, citing reports that some ships made transfers in the currency via China’s Cross-Border Interbank Payment System or crypto-assets to transit through the Strait of Hormuz in March and April. Commenting in a separate blog post, Executive Board member Piero Cipollone said that such “developments reflect a deliberate policy by China to expand the role of its currency in the areas where it has economic weight to bring to bear.” He also highlighted that the US was following a similar strategy. “Recent legislation on dollar-denominated stablecoins underpins a deliberate effort to extend the currency’s network into the digital realm,” he said. “The intent is to use new technology to further entrench an already dominant currency.” The ECB’s report again urged concrete steps toward completing the savings and investments union under an “ambitious” timetable. “Additional steps like joint financing of public goods would help establish a safe and liquid pool of EU public debt,” Lagarde wrote in the report, repeating a proposal that’s highly controversial in places like Germany.
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