Forecasts for May Jobs Report Show Employers Cautious and Tariff Impact Yet to be Felt

Key Takeaways

• Jobs growth is forecast to have grown in May, but more slowly than in April.
• Further impact from federal workforce cuts and ongoing trade uncertainty is likely to become visible in the coming months.
• Economists say the Fed is unlikely to cut rates at its June meeting.

Forecasts for the May nonfarm payrolls report indicate that the US labor market continues to add jobs. However, federal workforce layoffs and uncertainty around trade policies make for a cautious labor market.

According to FactSet, economists estimate that US employers added 125,000 jobs in May, lower than the 177,000 added in April. Meanwhile, the unemployment rate is forecast to rise to 4.3% in May from 4.2% in April.

Nationwide economist Oren Klachkin says there is “a lot of caution, not a lot of action.” He estimates 130,000 jobs were added in May, slightly above the consensus forecast. “Hiring has slowed down, but companies also aren’t moving to lay off people either. Everyone is waiting for more certainty in trade policies.”

May Job Report Forecast Highlights

• Job report release date and time: Friday, June 6, at 8:30 a.m. EDT
• Nonfarm payroll employment is forecast to rise by 125,000 versus a 177,000 increase in April, according to FactSet.
• The unemployment rate is forecast to increase to 4.3%.
• Hourly earnings are projected to rise 0.3% on a monthly basis after rising 0.2% in April.

Analysts at Goldman Sachs estimate that nonfarm payrolls rose by 125,000 in May. They note that big data indicators pointed to a solid pace of job creation. However, this was partially offset by a projected 10,000-job decline in federal government payrolls, which is expected to temper a 20,000-job increase at the state and local level, resulting in a modest overall gain of 10,000 jobs in government employment. Goldman Sachs also projects that the unemployment rate held steady at 4.2%, while average hourly earnings rose 0.3% month over month, supported by neutral calendar effects.

Impacts of Policy Changes

A focal point this year has been the volatile trade policies implemented by the Trump administration. Klachkin says it’s too soon to see any impact of the tariffs, and the report will reflect the cautious stance many companies are taking. “A lot of businesses are paying attention to what’s happening. Certainty is the most important thing.”

Preston Caldwell, senior US economist at Morningstar, reinforces this thinking: “It’s too early for tariffs to be having much impact on labor markets.” He notes that there is an inevitable lag, and economic activity (consumer spending, business investment) was not significantly impacted in the April data either.

On the trimming of the federal workforce, Caldwell says: “It will be interesting to see if federal payrolls contract further, given that the job cuts in the CES haven’t matched up to the announced cuts.” He notes that federal employment has fallen by 26,000 jobs since January, and adds that it excludes the reductions tallied by The New York Times, which include 58,000 layoffs and 76,000 employees who accepted a buyout offer.

Klachkin says: “It’s possible we will see something new in the report, not only in federal jobs but also sectors linked to the federal employment, such as healthcare and education.” However, he notes that much of the impact of these won’t be seen in the reports until the summer or even the fall.

Wage Growth Expected to Rise in May

Wage growth is expected to rise 0.3% in May after rising 0.2% in April. Klachkin also projects a 0.3% increase and anticipates it will hold steady in the near term. He expects that this wage growth will lead inflation down, closer to the Fed’s target of 2%.

Will the Fed Cut Rates in June?

Klachkin expects that the Fed is unlikely to cut rates at the June meeting, saying it’s too soon to see any impacts of policy changes. “The latest meeting suggests officials are still happy to keep the rates on hold and maintain a ‘wait and see’ approach.” However, he adds that if the report shows meaningful signs of weakening in the labor market, the Fed could be pushed to cut rates.

Bond traders currently believe there’s a 98.7% chance that the Fed will keep rates on hold in June, according to the CME FedWatch tool.