Economy added 172,000 jobs in May, better than expected report: CEI analysis

The Bureau of Labor Statistics’ jobs report for May shows an unexpected increase of 172,000 jobs, indicating an economy that has begun to pick up steam. The Federal Reserve will likely resist an interest rate cut at their next meeting in its continued mission to stamp out inflation.

CEI Research Fellow Sean Higgins:

“Friday’s Labor Department report that the economy gained 172,000 jobs in May, well above analysts’ expectations, suggests the economy is beginning to gain steam again thanks to attempts to wind down the Iran war and the relative calm on the tariff front. The report updated March and April’s numbers to add a further combined 93,000 jobs.

“Almost half of May’s gains, 70,000, were in leisure and hospitality, presumably from employers beginning to bulk up in anticipation of summer. The leisure and hospitality sector is the economy’s bellwether because it is one of the first places that consumers cut back in leaner times. With the summer coming and the U.S. hosting the World Cup, those employers are feeling more optimistic.

“One data point not mentioned in the Labor Department’s press release but included in the accompanying charts was that federal government employment rose by a marginal 1,000 jobs in May. It was only the second month-to-month increase in that workforce since the creation of the Department of Government Efficiency. As of April, DOGE had eliminated 348,000 jobs, or 11.5 percent of the workforce, from its October 2024 level. The trend suggests that the administration has deemed DOGE to have been successful in its mission and is winding it down according to its original July 4, 2026, termination date.”

CEI Senior Economist Ryan Young:

“This is the third month in a row with a decent jobs report, which is pretty good for an economy that is basically at full employment. The year-over-year change is less encouraging, with the labor force growing by 99,000 since April 2025, compared to population growth of more than two million. Economic growth was also recently revised downward to 1.6 percent, which is less than the 100-year average of just over 2 percent.

“Still, three months of jobs growth plus a 4.3 unemployment rate indicates an economy that doesn’t need any assistance from looser monetary policy. These numbers should prevent the Federal Reserve from lowering interest rates at its next meeting on June 16-17. This is good news for inflation, since one risk of lowering interest rates is more inflation. With inflation indicators now at almost double their target due to tariffs and the Iran war, this is especially important.”

The Bureau of Labor Statistics’ jobs report for May shows an unexpected increase of 172,000 jobs, indicating an economy that has begun to pick up steam. The Federal Reserve will likely resist an interest rate cut at their next meeting in its continued mission to stamp out inflation.

CEI Research Fellow Sean Higgins:

“Friday’s Labor Department report that the economy gained 172,000 jobs in May, well above analysts’ expectations, suggests the economy is beginning to gain steam again thanks to attempts to wind down the Iran war and the relative calm on the tariff front. The report updated March and April’s numbers to add a further combined 93,000 jobs.

“Almost half of May’s gains, 70,000, were in leisure and hospitality, presumably from employers beginning to bulk up in anticipation of summer. The leisure and hospitality sector is the economy’s bellwether because it is one of the first places that consumers cut back in leaner times. With the summer coming and the U.S. hosting the World Cup, those employers are feeling more optimistic.

“One data point not mentioned in the Labor Department’s press release but included in the accompanying charts was that federal government employment rose by a marginal 1,000 jobs in May. It was only the second month-to-month increase in that workforce since the creation of the Department of Government Efficiency. As of April, DOGE had eliminated 348,000 jobs, or 11.5 percent of the workforce, from its October 2024 level. The trend suggests that the administration has deemed DOGE to have been successful in its mission and is winding it down according to its original July 4, 2026, termination date.”

CEI Senior Economist Ryan Young:

“This is the third month in a row with a decent jobs report, which is pretty good for an economy that is basically at full employment. The year-over-year change is less encouraging, with the labor force growing by 99,000 since April 2025, compared to population growth of more than two million. Economic growth was also recently revised downward to 1.6 percent, which is less than the 100-year average of just over 2 percent.

“Still, three months of jobs growth plus a 4.3 unemployment rate indicates an economy that doesn’t need any assistance from looser monetary policy. These numbers should prevent the Federal Reserve from lowering interest rates at its next meeting on June 16-17. This is good news for inflation, since one risk of lowering interest rates is more inflation. With inflation indicators now at almost double their target due to tariffs and the Iran war, this is especially important.”