U.S. Job Growth Slows in May Amid Tariff Uncertainty and Hiring Caution

U.S. job growth likely decelerated in May as tariff-related uncertainty weighed on business confidence, though not enough to prompt the Federal Reserve to resume rate cuts immediately. Economists expect the Labor Department's report to show a 130,000 increase in nonfarm payrolls—down from April’s 177,000, but still above the 100,000 needed to sustain population growth. The unemployment rate is expected to remain steady at 4.2% for the third straight month, with average hourly earnings rising 0.3%, supporting consumer spending.

Wage growth is projected at 3.7% year-over-year, slightly below April’s 3.8%. Businesses are cautiously hoarding workers due to fears of rehiring challenges in a potential recovery, contributing to a low-hiring, low-layoff environment. Experts say President Trump's erratic tariff stance is hindering long-term business planning, further dampening hiring sentiment.

Sectors like healthcare likely added jobs, but tourism and hospitality may have declined amid geopolitical tensions and reduced international travel. Manufacturing employment remained weak, pressured by high tariffs on vehicle parts and raw materials. Construction jobs are also at risk due to steep levies on steel and aluminum.

Despite federal job cuts, many public employees on paid leave or buyouts are still counted as employed. Meanwhile, immigration crackdowns and revoked legal statuses may be shrinking the labor pool, potentially pushing unemployment lower and wage growth higher. Economists note a rising labor force participation rate among recent immigrants, though data accuracy concerns persist due to survey non-responses.

Financial markets widely expect the Fed to hold rates steady this month, with potential easing delayed until Q4. With firms holding onto employees to weather economic headwinds, significant labor market deterioration appears unlikely in the near term.