Labor market fragility

June 2, 2025

Payroll employment is expected to rise by 120,000 in May after increasing by 177,000 in April. Private sector payrolls are expected to rise by 135,000, while the public sector is expected to shed 15,000 jobs. The bulk of the losses in the public sector are retirements and seasonal workers. The national parks will be understaffed this year.

Most of the layoffs earlier in the year have yet to show up. Many of those workers either took buyouts or are on administrative leave, which means they are still on government payrolls. State and local governments, which were major drivers of gains, are facing budget pressures.

Healthcare and social assistance should continue to add overall employment gains. The two caveats are eldercare and research labs. Eldercare is disproportionately dependent upon immigrant labor. Government grants for scientific research have been frozen.

Leisure and hospitality should continue to moderate. Business and luxury travel remain strong, while demand from budget conscious consumers has cooled.

Elimination of the de minimis loophole is expected to take a toll on online retail, warehousing and distribution. Those losses will add to the disruptions to shipping at the ports of Los Angeles and Long Beach, where most imports from China come into the country.

Manufacturing employment is suffering from higher input costs and disruptions to supply chains. At least one vehicle producer was forced to idle production during the first half of May; that is reminiscent of the pandemic.

Construction is likely to show an increase in jobs. Many contractors scrambled to complete jobs prior to tariffs and changes in immigration kicking in.

Average hourly earnings should rise by 0.3%, slightly faster than the 0.2% increase the previous month. That translates to 3.7% on a year-over-year basis, a bit slower than the 3.8% in April. Hours worked per week are expected to edge down a tick to 34.2, which will slow the pace of average weekly take home pay.

Separately, the unemployment rate is expected to tick higher to 4.3%. The ranks of the long-term unemployed continue to swell, while the job market for new graduates remains tepid. Postings for internships plummeted in recent months.

The participation rate is expected to hold at 62.6%, the same as April. That will further suppress weekly earnings. Multiple job holders and those out of work due to parental leave are expected to remain elevated.