Economy adds 139,000 jobs in May, labor market growth slows: CEI analysis

May added 139,000 jobs to the economy, with the unemployment rate staying unchanged at 4.2 percent. Trump’s policies, namely his mission to shrink the federal government and the implementation of sweeping tariffs, have begun to shake up the labor market.

CEI Research Fellow Sean Higgins:

“Friday’s jobs report shows that President Trump’s effort to shrink the federal government is finally beginning to take hold. Federal employment was down 22,000 in May and is down 59,000 overall since January. The delayed response is due to the fact that the Labor Department considers those on paid leave or getting severance pay as still employed. That is finally ending for many federal workers.

“It is ironic that the data is coming in as Trump’s relationship with former Department of Government Efficiency head Elon Musk is fracturing. It remains to be seen if this pace can be maintained given the turmoil within the administration and 59,000 is still a drop in the bucket compared to the estimated three million people, excluding active-duty military, who work for the government. Nevertheless, the administration has shown that reducing the bloat of the federal government is indeed possible.”

CEI Senior Economist Ryan Young:

“Labor force growth is slowing. In order to keep up with population growth, job growth needs to be roughly 200,000. It slowed to 139,000 in May. Tariffs are the most obvious culprit.

“More importantly, the economy is shrinking, even as the labor force is still growing. Economic theory predicts that tariffs don’t affect the number of jobs that much, but they do make people less productive. Real-world data are showing this to be true.

“President Trump’s steel tariffs, which he doubled to 50 percent, might save some steel jobs, for example. But steel-using industries are hurt because their costs are higher. The same is true in industries across the country; 60 percent of US imports are production inputs for US businesses, not consumer goods.

“Since people can find jobs relatively easily in an economy with 7.2. million job openings, displaced workers are finding new work. Since the economy is essentially at full employment, it also has room to absorb some damage. Even accounting for a federal payroll decline of 22,000, private sector job growth is slower than it should be. Fortunately, the shortfall is small enough for the unemployment rate to remain steady at 4.2 percent.

“But if tariffs tip the economy into recession, that could expose other economic problems such as inflation, debt, and general policy instability. Unemployment could then become a more serious problem.”