May Jobs Report Preview: Slowing Hiring, Rising Caution as Trade and Federal Cuts Cast a Shadow

The U.S. Bureau of Labor Statistics will release the May jobs report at 8:30 a.m. ET on Friday, June 7, with markets anticipating evidence of a gradually cooling labor market amid trade policy uncertainty and federal workforce reductions. According to FactSet, economists expect the report to show 125,000 to 130,000 nonfarm payrolls were added in May, down from 177,000 in April. The unemployment rate is projected to tick up to 4.3%, while average hourly earnings are forecast to rise 0.3% month over month, an uptick from April's 0.2% pace.

This report comes on the heels of a week filled with mixed labor signals. Weekly jobless claims climbed to 247,000, the highest since October 2024, with the four-week average of continuing claims now at its highest level since late 2021. While these levels still fall short of signaling an outright recession, they do suggest companies are becoming more cautious, especially in light of mounting tariff concerns and budget constraints. ADP’s private sector jobs report, often a weak predictor of the BLS numbers, showed just 37,000 jobs added in May—an ominous sign suggesting weaker-than-expected official payroll gains.

Manufacturing and services labor metrics from the ISM surveys further underline the theme of labor market hesitation. The ISM manufacturing employment index remained in contraction at 46.8%, while services employment rebounded into modest expansion at 50.7%. However, commentary from both surveys pointed to tighter hiring scrutiny and strategic additions rather than broad-based job creation. In the services sector, firms noted leveraging large-company layoffs to fill specialized roles, while manufacturers reported ongoing headcount reductions, often through attrition and layoffs, amid murky demand visibility.

One growing area of concern is the spate of job cuts, particularly from the federal government and tariff-sensitive sectors. According to Challenger, Gray & Christmas, employers announced 93,816 job cuts in May, down from April but still up 47% year over year. Year-to-date, job cut announcements total 696,309—an 80% surge from the same period last year. The services sector led May’s layoffs, while retail and tech were not far behind. Significantly, the federal government has shed 26,000 jobs since January, with more cuts looming from delayed or contested policies enacted by the Trump administration.

While some of these structural pressures may not be fully visible in the May data, they are expected to create a drag on the labor market into the second half of the year. Analysts at Goldman Sachs trimmed their nonfarm payroll forecast to 110,000, citing weaker ADP data and soft ISM readings. However, they expect wage growth of 0.3% to hold up, buoyed by favorable calendar effects. Goldman’s call also includes a net gain of just 10,000 jobs in government employment as a modest rise in local hiring is offset by federal cuts.

Bank of America takes a slightly more optimistic view, forecasting a 150,000 gain in payrolls. BofA notes that hiring may have paused in trade and transportation sectors due to front-loaded gains in prior months and high tariff uncertainty. While they don’t expect aggressive layoffs yet, they do see downside risks ahead. The consensus forecast across major institutions continues to point to a labor market operating below its 12-month average of 157,000 monthly gains, reflecting hesitancy rather than panic.

The unemployment rate, expected to tick up to 4.3%, will be watched closely. While still historically low, a third consecutive month of increase could feed narratives about weakening labor momentum, especially in politically sensitive areas like the federal workforce. Analysts including Morningstar’s Preston Caldwell argue that layoffs tied to federal cutbacks and buyouts may become more visible in coming reports, with ripple effects in dependent sectors like healthcare and education.

On wages, economists broadly agree on a 0.3% monthly rise in average hourly earnings. That would mark a modest reacceleration and could serve as a stabilizing force for personal income and inflation expectations. While no one expects this report to move the Fed to act at its June meeting, it will certainly shape the tone heading into the summer—particularly if wage growth continues without significant job creation, raising productivity and margin implications for equity markets.

In summary, the May jobs report is shaping up as a barometer of resilience amid rising policy noise. With headline job growth likely slowing, elevated continuing claims, and the first cracks in public sector hiring, markets will be parsing the data for signs of either controlled deceleration or more worrying labor market fractures. Wage growth, the breadth of job creation, and any downward revisions to prior months could all determine whether the soft landing narrative remains intact—or if policymakers and investors must prepare for a bumpier ride.