US job growth seen cooling to 80,000 in May as labor market stabilizes

The US labor market is on track to post its third consecutive month of job growth in May, a sign the hiring slowdown that rattled markets late last year has given way to a stabilizing trend.

"The labor market continues to show sustained momentum going into the summer hiring season," said Nela Richardson, chief economist at ADP.

Economists surveyed by Dow Jones Newswires and the Wall Street Journal forecast nonfarm payrolls rose by 80,000 in May, down from a gain of 115,000 in April. The unemployment rate is expected to hold at 4.3 percent, according to the survey. A separate Reuters poll of economists put the consensus estimate at 85,000. The Bureau of Labor Statistics report is due Friday at 8:30 a.m. New York time.

The data will inform the Federal Reserve's next policy move as officials weigh whether the economy can sustain current interest rates. A stronger-than-expected print could reinforce the case for holding rates steady, while a weaker number would revive bets on rate cuts later this year.

ADP data points to broad-based hiring

Private sector hiring exceeded expectations in May, with payroll processor ADP reporting employers added 122,000 jobs, above the 117,000 consensus estimate. The April figure was revised down to 105,000 from an initially reported 109,000.

Education and health services led with 57,000 new positions, followed by trade, transportation and utilities at 36,000 and professional and business services at 11,000. Leisure and hospitality and construction each added 8,000 jobs. Small businesses with fewer than 50 employees accounted for more than half of the gains, adding 67,000 positions.

"Hiring was more broad-based in May than we've seen in the last few years," Richardson said. ADP's report, developed jointly with the Stanford Digital Economy Lab, has historically been an imperfect predictor of the government's official payrolls data.

A lower bar for stability

One factor complicating the outlook is that the US economy needs fewer new jobs than in the past to keep unemployment from rising. Reduced immigration and the aging workforce have lowered the so-called break-even rate — the monthly payroll gain required to hold the jobless rate steady. Economists at Deutsche Bank, led by Chief Economist Matthew Luzzetti, estimate that threshold at just 20,000 jobs per month.

Although the economy struggled to meet that benchmark late last year, there are signs the trend has turned around, Luzzetti's team wrote in a commentary. "Downside risks are still present from the continuation of the fragile low-hiring, low-firing equilibrium," they said. "But upside risks have also emerged, as payroll gains have picked up against a backdrop of constrained labor supply."

The three-month stretch of gains would be the first such run since early 2025, following a period when the economy lost jobs in multiple months as tariff-related uncertainty discouraged hiring. Bloomberg Economics chief US economist Anna Wong said the hot March and April reports reflected underlying momentum rather than just a rebound from earlier weakness, suggesting the recovery has staying power.

This article is for informational purposes only and does not constitute investment advice.