The May Jobs report was stronger than most people, including me, had expected. The 172,000 jobs created is not exactly earth-shattering, but in a context where immigration has been largely shut off and the labor force is barely growing, it is a lot. Plus, the two prior months’ data was revised up, so the average over the last three months is 188,000. 

That looks pretty good, but the separate household survey looks less good. The unemployment rate held steady at 4.3%, which by historical standards is low, but it’s almost a full percentage point higher than the 3.4% low hit in the spring of 2023. 

More striking is that the rate did not fall given the rapid job growth reported in the establishment survey. As the establishment data has shown strong job growth over the last three months, the household survey actually showed a small drop in employment from the February level. To be clear, the surveys often are not aligned, so this discrepancy is not especially striking, but it is worth noting. 

Anyhow, I have five main takeaways from the May report. 

1. Jobs are growing far faster than the breakeven rate

2. Wages are not keeping pace with inflation

3. Workers are still reluctant to leave jobs

4. Job-killing AI is not visible in the data 

5. Self-employment is lagging 

Good Job Growth, but Heavily Concentrated

The entire 172,000 job growth came from three sectors: leisure and hospitality, local governments, and healthcare and social services. These sectors added 70,000 jobs, 55,000 jobs, and 47,200 jobs, respectively. To be clear, other sectors added some jobs. Construction added 17,000 jobs, manufacturing added 7,000 jobs, but with sectors like finance and wholesale trade losing jobs, the net outside of these sectors was zero.

The job growth in the healthcare and social services sector was not surprising. It has been adding jobs at a rapid pace throughout the recovery. This is the story of aging baby boomers needing more care. Most of the growth in the social service category is home healthcare aides. This growth will likely continue.

The growth in local government employment is a surprise. Most local governments are facing financial problems as funding from the federal government has been curtailed in many areas. It is unlikely this growth will continue and may be reversed in future months.

The leisure and hospitality story is the hardest to explain. Most of this growth (48,000) was in restaurants. This doesn’t seem to fit the data on spending. According to the Commerce Department, inflation-adjusted spending in restaurants is down by 1.0% since September. Yet employment is up by 154,000 or 1.2%. These changes will never match up precisely, but this is a large divergence. Maybe restaurant workers are getting less productive for some reason. 

There are some interesting stories in construction and manufacturing. Construction has added 65,000 since December, an average of 13,000 a month. That is not exactly earth-shattering, but the sector lost 4,000 jobs in 2025. 

Similarly, manufacturing is showing modest job gains this year, adding 25,000 jobs since December. The durable goods sector has been doing even better, adding 46,000 jobs. Again, this is not exactly a great story, but at this pace the sector could get back the jobs lost in 2025, sometime next year.

In any case, with immigration likely near zero, the number of jobs needed to keep pace with the growth of the labor force is in the 30,000-60,000 range. We are well above that pace in the last three months.

Wages Are Falling Behind Inflation

Wage growth is continuing to slow, with the year-over-year increase at just 3.4%. That is down from being slightly above 4.0% in 2023 and 2024. Tariffs and the war-related surge in energy prices have pushed inflation higher. It had been slowing toward 2.0% in 2024, but it now is at 3.8% and likely to hit 4.0% when we get the May Consumer Price Index next week. 

Slowing wage growth in the face of rising inflation seems hard to reconcile with strong job growth and relatively low unemployment. Workers should be in a position to get higher wages, but that does not seem to be the case. 

Workers Are Reluctant to Leave Their Jobs

One factor that can help to explain weak wage growth is the reluctance of workers to leave their jobs. We know from the Job Openings and Labor Turnover Survey (JOLTS) that both quits and hires are very low. This is also reflected in the relatively low share of unemployment due to voluntary quits. This rose from 11.3% in April to 12.5% in May, but that is still below the 13.2% average in the 2018-19 period of comparably low unemployment. The fact that the duration measures of unemployment are all relatively high, and rose last month, suggests that workers are right to be wary.

The Job-Killing AI is Still Hiding from the Statistical Agencies

If AI is allowing us to do more with fewer workers, it should show up in more rapid productivity growth. We are not seeing this in the data. Productivity growth was just 1.6% in the 4th quarter and 0.3% in the first quarter. We had been seeing growth in excess of 1.5% earlier in the recovery. And we had growth of just under 3.0% annually in the long post-war boom from 1947-1973. 

Based on the April and May data it looks like hours will grow at close to a 2.0% rate in the second quarter. Unless we get some blockbuster growth numbers for output in June, we will have another quarter of weak productivity growth. Either the story of job-killing AI is yet another economic myth, or the AI is much smarter than we think, and is hiding from the statistical agencies.

Self-Employment is Weak

One story of AI is that it is supposed to make it easier for people to start businesses. We are in fact seeing a strong uptick in new business formation. However, this is not showing up in the data on self-employment. 

Taking an average of the last three months, incorporated self-employment is down by 1.0% from the year ago, while unincorporated self-employment is down by 4.2%. This is a contrast from earlier in the recovery when self-employment was rising rapidly. Incorporated self-employment in the months from March to May was 10.8% higher than it had been in 2019, before the pandemic. Unincorporated self-employment was 6.0% higher. This story could change, but for now, it doesn’t look like AI is leading to a boom in self-employment.

Questions for Next Month

The May report definitely had some good news, but also raises many questions. What good jobs report doesn’t? 

Some of the things I will be looking for is what happens to local government employment, is wage growth picking up, are people quitting their jobs? But we have a month to worry about these things. Enjoy the summer until then.