U.S. employers added 172,000 jobs in May, the Labor Department reported Friday, and the unemployment rate held at 4.3%.
Leisure and hospitality drove much of the gain, with the sector adding 70,000 jobs, and restaurants and bars alone added 48,000. Local government employment rose by 55,000, healthcare added 35,000 and the financial sector cut about 22,000 jobs.
The Labor Department also revised payroll gains for March and April higher, to 214,000 and 179,000 respectively, and employers added an average of roughly 188,000 jobs per month over the last three months.
Average hourly wages rose 0.3% from April and were up 3.4% from a year earlier, likely lagging behind April's 3.8% annual increase in prices. The Labor Department is set to report May inflation next week, providing policymakers another key data point ahead of the Fed's mid-June meeting.
The workforce grew slightly in May as about 83,000 people began working or looking for work.
Economists said the stronger-than-expected payrolls make it unlikely the Federal Reserve will cut interest rates soon. "This is a blowout jobs report," said Olu Sonola, head of U.S. economics at Fitch Ratings, adding that the headline strength is enough to keep the Fed focused on inflation.
"The hiring recession is over. American firms are hiring again," said Heather Long, chief economist at Navy Federal Credit Union.
Citigroup economist Veronica Clark said Monday, "We expect a third consecutive month of job growth in May," and warned that "recent large and rapid changes in the size and composition of the labor force due to slowing immigration could mean employment patterns shift throughout the year in unpredictable ways, increasing the monthly volatility of data."
Bank of America U.S. economist Shruti Mishra said Tuesday, "Education and health, where AI adoption has been slower and demographics remain a tailwind, should continue to lead job gains." She added, "That said, we are likely to see some job growth broadening," and pointed to manufacturing activity at a four-year high and potentially stronger trade and transportation gains.
Economists with Capital Economics cautioned that the Spirit Airlines bankruptcy on May 2 could dent payrolls; Spirit ceased all operations and laid off most of its 18,000 employees after being crushed by surging fuel costs.
Bureau of Labor Statistics data showed job openings nationwide jumped in April to their highest level in nearly two years, and the data also showed layoffs declined from March.
Beth Hammack, president of the Federal Reserve Bank of Cleveland and a voter on the Fed's interest rate-setting committee, said Tuesday, "If recent data trends continue, it may soon be appropriate for policy to act to address the growing risks of persistently elevated inflation." She added that "monetary policy may not be sufficiently restrictive to bring inflation down to 2%."
Since the war with Iran started Feb. 28, the average price of retail gasoline has risen more than 40% while U.S. crude oil increased 30%; diesel fuel has risen 55% and the surge in wholesale inflation pushed that measure to 6% in April, up from 4.3% in March.
Fed governor Lisa Cook said last week, "I want to be clear about my risk assessment: The risks remain tilted toward higher inflation," and she warned that trillions of dollars of AI investments could cause another price shock as prices for data center equipment, computer memory and chips have soared.