WASHINGTON--The U.S. economy posted a third straight month of strong job gains in May, confirming the labour market was gaining traction after stumbling last year and giving the Federal Reserve more room to keep interest rates unchanged amid rising inflation due to the war in the Middle East.
The closely watched employment report from the Labor Department on Friday painted an upbeat picture of the job market. The economy added 93,000 more jobs in March and April than previously estimated and the unemployment rate held at 4.3% for a third consecutive month. While financial markets boosted the chances of an interest rate hike in December, economists said the bar remains high for monetary policy tightening, pointing to moderate wage growth. But they acknowledged the report gave ammunition to Fed officials pushing for the removal of the central bank's easing bias. The policy-setting Federal Open Market Committee will release its next statement on June 17. Economists say fiscal stimulus, in the form of tax and import tariff refunds, has cushioned the impact of the U.S.-backed war with Iran, which has stoked inflation through a surge in oil prices. Corporate profits have increased since the second quarter of 2025, allowing businesses to refrain from large-scale layoffs. Economists, however, warned of risks to the labour market if the war persists. "It has become increasingly clear that hiring has picked up from the sluggish pace seen for much of 2025, but we do not believe the labour market has shifted back into overheating mode," said Tom Porcelli, chief economist at Wells Fargo. "That said, the wind is likely to remain beneath the wings of the hawks on the FOMC for now." Nonfarm payrolls increased by 172,000 jobs last month after rising by an upwardly revised 179,000 in April, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls would increase by 85,000 jobs after a previously reported rise of 115,000 in April. Estimates for job growth ranged from 50,000 to 125,000. The payrolls count for March was revised up by 29,000 jobs to 214,000. Employment gains have now averaged 188,000 jobs per month over the past three months, nearly triple the comparable figure for the same period in 2025. Private sector employment increased by 120,000 jobs in May, with total government payrolls rising by 52,000, the most in nearly two years. Economists estimated the economy needs to create between zero and 50,000 jobs per month to keep up with growth in the working-age population. The so-called break-even rate has dropped because of an immigration crackdown that has reduced the labour force, limiting the rise in the unemployment rate. The strength in job growth was mirrored by the household survey from which the unemployment rate is calculated. Household employment increased by 149,000, more than absorbing the 83,000 people who entered the labour force. Still, the labour force participation rate was unchanged at a 4-1/2-year low of 61.8%. The labour force is down by about 1.4 million since December.
