The U.S. labor market delivered a steadier-than-feared reading in May 2025, adding 139,000 jobs and topping Wall Street forecasts even as hiring momentum continued to slow under the weight of tariff-related uncertainty. Average hourly earnings rose 3.9% year-on-year, a firmer pace than expected, giving the Federal Reserve fresh reason for caution on the timing of rate cuts. The release, published by the Bureau of Labor Statistics on June 6, briefly reset market expectations for monetary policy and risk appetite alike.

A Solid Headline Against a Cooling Trend

Payrolls grew 139,000 in May, ahead of the roughly 120,000 economists had penciled in, though April's gain was revised down to 147,000. Health care led the additions with 62,000 jobs, followed by leisure and hospitality at 48,000 and social assistance at 16,000. The unemployment rate held at 4.2% for a third straight month, near multi-decade lows, while wages climbed 0.4% on the month and 3.9% from a year earlier, both stronger than forecast and a sign that employers were still competing for workers in key service sectors despite the broader slowdown.

Trade Policy and a Shrinking Federal Workforce

Beneath the headline strength, cracks were visible. The labor force shrank by 625,000 people in May, and government payrolls fell by 22,000 as the Trump administration's efforts to cut the federal workforce, led by the Department of Government Efficiency, continued to bite. The report followed a difficult spring shaped by tariff whiplash, including the announcement and partial rollback of sweeping "Liberation Day" duties in early April, which had left many employers reluctant to commit to headcount expansion while trade policy and input costs remained in flux. Manufacturing and goods-producing sectors, most exposed to import costs, showed particularly little momentum.

Wall Street's Relief Rally

Equity markets welcomed the print as a signal the economy was slowing without breaking. The S&P 500 rose 1% to 6,000.36, the Dow Jones Industrial Average gained 443.13 points, or 1%, to 42,762.87, and the Nasdaq Composite jumped 1.2% to 19,529.95. Treasury yields ticked higher as traders trimmed bets on near-term Fed easing, while the dollar firmed against major peers on reduced recession risk. The rally was broad-based, with cyclical sectors such as industrials and financials outperforming as investors rotated back into growth-sensitive names.

What It Means for Traders

The May report reinforced the market's central theme for 2025: a labor market losing speed gradually rather than abruptly. For traders, that keeps the Fed on a data-dependent, wait-and-see path, with each payrolls and wage print capable of swinging rate-cut odds and, with them, equity and currency positioning. The combination of firm wage growth and a shrinking workforce also signals lingering inflation risk, a dynamic worth tracking into subsequent CPI and PCE releases, particularly given how quickly sentiment shifted between recession fears and relief within the same week. It also reinforced how a single release can flip market narratives within hours, underscoring the value of waiting for confirmation across several data points before committing to a directional view.

Daily market analysis by BCM Markets.