US adds 172,000 jobs in May, blowing past forecasts

US employers added 172,000 jobs in May, far exceeding the 80,000 consensus estimate, as the labor market accelerated into spring even as wage growth slowed to 3.4%, complicating the Federal Reserve's path on rates.

"This is a hotter report than the market expected, and it shows the economy has real underlying strength despite the headwinds from higher energy prices," said Steve Moore, economist and former Trump adviser, on Fox Business.

The unemployment rate held at 4.3%, while the labor force expanded by 83,000. Revisions added 64,000 jobs to March and April, pushing the three-month average to 188,000. Hospitality led with 70,000 new positions, restaurants and bars adding 48,000 ahead of summer demand. Healthcare contributed 35,000. Financial firms cut 22,000.

The data complicates the outlook for the Federal Reserve under Chair Kevin Warsh, who faces inflation running at 3.8% — above the 3.4% wage gain — after the Iran war pushed energy costs higher. Markets now see little chance of rate cuts at the Fed's June 16-17 meeting, despite pressure from President Trump.

The May report marks the third consecutive month of above-trend hiring after anemic job growth in 2025, which was the weakest year for payroll expansion outside a recession since 2003. The 172,000 print was more than double the 85,000 median forecast from analysts surveyed before the release, and Goldman Sachs' below-consensus call for 60,000 proved too cautious.

Wage Growth Trails Inflation

Average hourly earnings rose 3.4% from a year ago, the slowest pace in months and below the 3.8% inflation rate recorded in April. That means real wages are shrinking for American workers even as the job market tightens — a dynamic that squeezes household spending power and amplifies the economy's K-shaped recovery, where higher-income households fare better than lower-income ones.

The gap between wage growth and inflation is the direct consequence of the Iran war, which began just over three months ago and sent fuel prices surging. The Labor Department's May CPI report, due next week, will provide the next key data point for Fed policymakers.

What This Means for the Fed

The combination of strong hiring and sticky inflation leaves the Federal Reserve in a holding pattern. The central bank lowered rates by three-quarters of a percentage point in late 2025 but has held steady this year. Overnight index swaps now price a less than 20% probability of a cut at the June meeting, down from roughly 35% before the jobs report.

"The strong report reinforces the view that the US economy remains resilient, but it could also revive concerns that the Federal Reserve will need to keep rates restrictive for longer," said Daniela Hathorn, senior market analyst at Capital.com.

The last time the labor market showed this much momentum while inflation ran above 3.5% was in early 2024, when the Fed held rates at 5.25-5.50% for eight months before eventually cutting in September of that year. If history is a guide, Warsh and his colleagues may need to maintain their current posture well into the second half of 2026.

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