U.S. employers added a surprising 172,000 jobs in May, demonstrating continued resilience in the labor market despite rising costs stemming from the Iran war, the Labor Department reported Friday.
Job Growth Slightly Below April Levels
The May figure was down slightly from a revised 179,000 jobs added in April. The unemployment rate remained at a low 4.3%, unchanged from the previous month.
The job market has been recovering this year from a dismal 2025, so far shrugging off higher energy prices and increased economic uncertainty since the United States and Israel attacked Iran in late February. Hiring has bounced back, showing unexpected strength in the face of these challenges.
Labor Market Still Below Pandemic Boom
Despite the improvement from last year, job creation remains significantly below the boom that followed pandemic lockdowns. Workers, jobseekers, and employers are stuck in an awkward "no-hire, no-fire" labor market. Diane Swonk, chief economist at KPMG, described the situation as "a sense of being frozen or left in a sort of labor market purgatory."
Many young people find it tough to break into a stagnant job market, and laid-off workers struggle to return to work. More than a quarter of the unemployed in April had been jobless for over six months, up from less than 20% two years ago.
Quits Drop to Lowest Level Since 2020
Seeing their prospects diminished, Americans are reluctant to leave their jobs. In April, the number of people who quit dropped to the lowest level since August 2020, when COVID-19 was rampant.
Last year, employers added just 9,700 jobs a month, the fewest outside a recession since 2002. This year, hiring has rebounded, averaging 76,000 new jobs per month from January through April. Big tax refunds from President Trump's 2025 tax cuts have given the economy a lift, offsetting higher energy prices, but those refunds have mostly been pocketed, and gasoline prices remain above $4 per gallon.
Healthcare Leads Job Growth
Healthcare companies have been propping up the job market, adding over 456,000 jobs in the past year, while all other U.S. employers collectively cut 205,000 jobs. Analysts Martha Gimbel and Ryan Nunn of Yale University's Budget Lab note that strong healthcare hiring aligns with an aging population needing more medical care. They question why other industries have not kept pace, suggesting that an immigration crackdown may have reduced the supply of foreign-born workers.
The United States doesn't need as many new jobs as it used to, due to fewer immigrants and rising Baby Boomer retirements. The break-even point for keeping unemployment stable has likely dropped to near zero, from 155,000 jobs per month typical two or three years ago, according to a Federal Reserve report.
AI and Remote Work Impact Employment
Some analysts fear AI will wipe out entry-level jobs, but economists at EY-Parthenon note that AI adoption is proving gradual and costly, reducing hiring rather than triggering layoffs. A New York Federal Reserve study identifies remote work as a culprit for young people's struggles to land jobs after college, as businesses are reluctant to hire new grads for work-at-home jobs due to training and mentoring challenges.
