U.S. Employment (May 2026)

Payrolls surprise meaningfully to the upside in May, while the unemployment rate holds steady at 4.3%

• Nonfarm payrolls rose by 172k in May, largely meeting April's gain of 179k and well ahead of the consensus forecast calling for a smaller print of 85k. Revisions to the two prior months were meaningfully higher, adding a total of 93k from the previously reported figures, with both March (+185k from +214k) and April (+115k from +179k) revised higher.
  • Smoothing through the volatility, nonfarm payrolls averaged 188k per-month over the last three months, considerably stronger than the six-and-twelve-month averages of 92k and 42k, respectively.  
• Private payrolls rose 120k, following a stronger gain of 177k in April. Job gains were concentrated in health care (+35k), leisure & hospitality (+70k), construction (+17k) and manufacturing (+7k). Government hiring rose 52k, largely driven by local government (+55k), while federal hiring added a modest 1k jobs last month. 
• In the household survey, civilian employment (+149k) and the labor force (+83k) rose by a similar amount, holding the unemployment rate steady at 4.3% for a third consecutive month. The labor force participation rate was unchanged at 61.8%, after having steadily declined through the first four months of the year. 
• Average hourly earnings (AHE) rose 0.3% month-on-month (m/m), following a softer 0.2% m/m gain in April. On a twelve-month basis, AHE ticked slipped to 3.4% (from 3.6% the month prior).

Key Implications

• Overall, this was a solid employment report. Not only did headline payrolls come in stronger than expected, but revisions to prior months were meaningfully higher and well above six-and-twelve-month averages, suggesting some reacceleration in hiring activity. Importantly, job growth is no longer exclusively being driven by acyclical sectors like health care and social assistance, with more cyclically sensitive sectors like manufacturing, construction and leisure & hospitality also contributing. 
• From the Fed's standpoint, the narrative has clearly shifted from when they'll cut again to if their next move is even a cut. Yields across the curve jumped higher post-payrolls, with Fed futures now fully pricing in a rate hike by year-end. At a minimum, this suggests the FOMC will drop its easing bias at its next policy announcement on June 17th and perhaps even strike a more hawkish tone given the labor market is now showing signs of reaccelerating.

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