The economy has given mixed signals in recent months. Consumption and housing seem to be weakening. Investment is healthy, but outside of AI, mostly weak. The growth in government spending, pulling out the gyrations associated with the shutdown, is also weak. And there is little clear movement in the trade deficit.

Nonetheless, the labor market, which had been weakening through 2025, appears to have picked up substantially in 2026. From December 2024 to December 2025, the economy added just 116,000 jobs, an average of less than 10,000 a month. Just focusing on the private sector, to get around the federal government layoffs, only gives a slightly better picture. Over the year, it added 296,000 jobs, an average of less than 25,000 a month.

As has been widely noted, this slower growth may not be far from the breakeven pace, now that immigration has largely stopped. Nonetheless, growth has picked up to an average of 83,000 a month since December. That is almost certainly above the breakeven pace.

This faster job growth has been accompanied by a modest decline in unemployment, with the rate falling from 4.5 percent in November to 4.3 percent in April. The drop has been sharper for disadvantaged groups. For Black workers, it fell from 8.2 percent in November to 7.3 percent last month. For young workers between the ages of 20-24, the unemployment rate dropped from a high of 9.2 percent in September to 8.2 percent in April.

Strong Job Growth, Again Concentrated in Health Care

Overall job growth is likely to be close to 80,000 in May, with health care again accounting for the largest portion of it. Last year, health care accounted for all of the job growth, with the sector adding 387,000 jobs from December 2024 to December 2025. The broader health care and social assistance sector added 686,000 jobs.

The health care and social assistance category should add roughly 50,000 jobs in May. It’s worth noting that most of the growth in the social assistance category is care for the elderly and disabled people.

Restaurants had been a consistent, if modest, job gainer through 2025, adding 78,000 jobs for an average of 6,500 a month. The pace of gains has slowed to just over 3,000 a month in 2026. With real restaurant spending down by 2 percent since September, it is unlikely there will be substantial gains in employment in May.

The retail and courier (e.g., Amazon) sector were big job gainers, adding 21.8K and 37.9K jobs, respectively. This will not be repeated, and is likely to be at least partially reversed in the May data.

Motion Picture Sector Continues to Shed Jobs

The motion picture industry lost another 6,000 jobs in April. Employment is now down 127,300, 27.9 percent since its peak in November of 2022. This is one area where AI is likely having an impact, as people are spending more time viewing AI-produced material. The potential Paramount-Warner merger could also be a big deal here.

Construction and Manufacturing Likely to Be Weak

The March report showed surprisingly good numbers for both construction and manufacturing, with the former showing a rise of 26K jobs and manufacturing adding 15K, its largest gain since November 2023.

The picture looked much worse in April. Construction added just 9K and the March rise was revised down to 16K. With both residential and non-residential remaining weak, job growth in construction is likely to be minimal in May.

Manufacturing returned to its pattern of job losses in April, shedding 2K jobs. War-related spending will eventually provide a boost to manufacturing, but that will take some time. The sector will likely lose jobs again in May.

The surge in oil prices will cause some rise in employment in that sector, but that will also take time and be fairly limited. Oil and gas extraction actually lost 700 jobs in April.

Wage Growth Continues to Slow

Even as the labor market showed some strength in the first four months of 2026, wage growth slowed to a 3.6 percent year-over-year rate. This is down from a rate just over 4.0 percent in 2023-24. This slowing comes even as inflation is rising, putting workers slightly behind inflation in the last year. An uptick in wage growth would be good news for workers struggling with higher prices, but it would also push the Fed in the direction of a rate hike at its June meeting.

Unemployment Due to Quits Likely to Remain Low

Many of us have noted that we seem to be in a low-hire, low-fire economy, with relatively little job turnover. This is consistent with the share of unemployment due to quits, which has mostly been close to 11.0 percent. By contrast, it was over 13 percent in the strong labor market of 2018-19. The modest evidence of a pick-up in job growth may boost this slightly in May.

Employment for College Grads May Improve Slightly

The unemployment rate for college grads hit 3.0 percent in January and February, which is near a recession level for this group. It fell back to 2.8 percent in March and April. Perhaps more importantly, their employment-to-population ratio (EPOP) has risen to 69.8 percent, up from 69.3 percent in January. That compares to a recovery peak of 71.9 percent. There may be some further improvement this month.

Little Evidence of AI Impact in the Data

For all the hype about AI taking all the jobs, it is very difficult to find any evidence of that in the jobs data to date. The movie sector is the one place where it is arguably having a visible impact on employment, and even there much else is going on. Also, the sector has only 330K jobs, just 0.2 percent of total employment.

Overall, productivity growth has actually slowed sharply in the last two quarters, rising at a 1.6 percent annual rate in the fourth quarter of 2025 and just a 0.8 percent rate in the first quarter of 2026. These data are highly erratic, but seeing two quarters like this is hard to reconcile with an AI-productivity boom.

In this respect, it is worth noting that Indeed’s survey of the share of job postings listing AI fell slightly at the end of April. The drop was trivial, but the share had been rising very rapidly all through 2025 and earlier this year, so the turnaround is striking.

General Picture: Healthy Job Growth and Stable Unemployment

The overall labor market story for May is likely to be positive, with the economy creating a good number of jobs and the unemployment rate remaining at a relatively low level. However, if wage growth continues to lag inflation, consumer demand will not be able to sustain growth going forward, especially if higher interest rates hit housing and car purchases.