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A Slower May for the U.S. Job Market? All Eyes on Friday’s Jobs Report

As businesses and consumers continue to navigate a challenging economic landscape—fueled by inflation, geopolitical tensions, and looming tariffs—Friday’s May jobs report is expected to paint a picture of a cooling labor market.

Scheduled for release at 8:30 a.m. ET by the Bureau of Labor Statistics (BLS), the nonfarm payroll (NFP) numbers are projected to show just 125,000 new jobs added in May. That’s a notable slowdown from the 177,000 jobs initially reported in April, and below the monthly average of 144,000 so far this year.

While the drop isn’t catastrophic, it could trigger broader economic concerns depending on how much softer the labor market appears.

Labor Market at a Crossroads

Economists and investors are closely watching to see whether a soft reading will signal deeper weakness ahead or simply reflect temporary friction in the economy.

Julien Lafargue, Chief Market Strategist at Barclays Private Bank, wrote in a note,

“If the number lands closer to 100,000, it might fall into the ‘not-as-bad-as-feared’ category. But if we dip below that threshold, it could reignite recession fears.”

On the flip side, a stronger-than-expected print could spark volatility in financial markets, as it would reduce the odds of near-term interest rate cuts by the Federal Reserve, potentially pushing Treasury yields higher and pressuring equities.

Mixed Signals from Economic Data

The May jobs report comes amid conflicting indicators:

• ADP private payroll data, often seen as a preview to the BLS report, showed just 37,000 new jobs in May—a two-year low, and a stark drop from April's 192,000.
• Initial jobless claims have edged higher, with last week’s number rising to its highest level since October, signaling growing labor market stress.
• Business surveys, including the ISM Manufacturing Index, suggest declining employer sentiment, often a leading indicator of future employment weakness.

These “soft” data points reflect growing concerns about inflation and global trade disruptions, especially as the U.S. and key partners navigate new rounds of tariff negotiations.

Tariffs and Inflation: A Growing Drag

Dan North, Senior Economist at Allianz Trade North America, believes the economic softening is beginning to show up more clearly.

“We do think it’s going to slow down. Tariffs are starting to bite. And uncertainty, not just about trade but also monetary policy, is weighing on employers.”

President Biden is currently operating within a 90-day negotiating window with key trade partners. If new tariffs are introduced or previously paused duties are reinstated, inflation pressures could mount—complicating the Fed’s balancing act even further.

Wall Street's Forecasts Diverge

Economists across Wall Street are split in their predictions for Friday’s numbers:

• Goldman Sachs projects 110,000 new jobs
• Bank of America is more optimistic, forecasting 150,000
• The consensus median sits at 125,000

Markets will also scrutinize wage growth and unemployment rate figures. Analysts expect:

• Unemployment rate: to hold steady at 4.2%
• Average hourly earnings: to rise by 0.3% month-over-month and 3.7% year-over-year

These wage trends are a double-edged sword: steady gains support household spending, but also stoke inflationary pressures that keep the Fed cautious.

What This Means for the Fed

Most Fed policymakers remain focused on inflation, but they’re watching the labor market closely. Strong employment typically delays rate cuts, while significant weakening could accelerate them.

Fed Governor Adriana Kugler said Thursday in New York:

“The data we have so far shows employment is still growing and the balance between supply and demand in the labor market hasn’t tipped dramatically.”

Currently, markets don’t expect any changes to the Federal Funds Rate until at least September, though that could shift dramatically based on Friday’s numbers and inflation data due next week.

Bottom Line

Friday’s employment report will be a pivotal moment for markets, policymakers, and the broader economy. A moderate slowdown might signal resilience in the face of headwinds, while a sharper-than-expected drop could spook investors and prompt faster action from the Fed.

Either way, May’s jobs report will help set the tone for the summer’s economic trajectory—and possibly the rest of the year.