The US labor market delivered another strong performance in May, as job growth accelerated unexpectedly, highlighting the resilience of the economy despite elevated energy prices and persistent inflation pressures.

According to the US Bureau of Labor Statistics report released on Friday, nonfarm payrolls increased by 172,000 jobs on a seasonally adjusted basis. That followed a revised gain of 179,000 jobs in April and significantly exceeded economists expectations for an increase of just 80,000 jobs.

Meanwhile, the unemployment rate held steady at 4.3%, in line with market forecasts.

Gus Faucher, Chief Economist at PNC, said the labor market is currently stronger than it was a year ago and remains remarkably resilient despite higher energy costs and broader inflationary pressures.

There are no signs that the labor market needs support, Faucher said.

Broad-based hiring gains

Mays report showed a broader expansion in hiring across several sectors.

The leisure and hospitality sector led job creation, adding 70,000 positions, far above its average monthly gain of 14,000 over the past year.

Local governments added 55,000 jobs, while the healthcare sectorone of the primary drivers of employment growth in recent yearscontributed 35,000 new positions, roughly in line with its long-term average.

The social assistance sector added another 12,000 jobs.

Average hourly earnings increased 0.3% during the month and rose 3.4% from a year earlier, matching market expectations.

A stronger labor market picture

The report comes after a period of relatively modest expectations, as companies adopted a cautious hiring strategy characterized by lower rates of both hiring and layoffs.

Although job gains remain concentrated in a limited number of sectors, layoffs have stayed relatively subdued despite growing concerns about the impact of artificial intelligence on employment.

Revisions to prior months also painted a stronger picture of the labor market. April payrolls were revised upward by 64,000 jobs, while March payrolls were increased by 29,000 to 214,000 jobs.

US President Donald Trump dismissed the Commissioner of the Bureau of Labor Statistics last summer following weak employment data and substantial downward revisions, later appointing William Jay Wiatrowski as the agencys acting head.

Heather Long, Chief Economist at Navy Federal Credit Union, described the report as a clear sign that the hiring slowdown has ended.

American companies are hiring again, Long said. This is a strong jobs report from every angle.

Market reaction

Following the release of the data, US Treasury yields rose sharply while US stock futures generally moved lower.

The household survey, which is used to calculate the unemployment rate, also showed positive developments, with the number of employed individuals increasing by 149,000.

The labor force participation rate remained unchanged at 61.8%, while the broader unemployment measurewhich includes discouraged workers and those working part-time for economic reasonsdeclined to 8.1%.

Implications for Federal Reserve policy

The stronger-than-expected employment data is likely to reduce expectations for near-term Federal Reserve rate cuts.

Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management, said robust labor market conditions keep the Federal Reserve firmly in a wait-and-see mode, with inflation now taking center stage.

Rate cuts remain unlikely in the near term, Zentner said. However, the absence of inflationary pressure in todays report may cool some of the recent discussion about potential rate hikes.

In recent weeks, Federal Reserve officials have become increasingly comfortable with labor market conditions and have shifted their attention toward persistent inflation concerns, which have reduced the likelihood of additional rate cuts.

The Federal Reserve lowered interest rates by 0.75 percentage points during the second half of 2025 before moving to a policy of holding rates steady this year while waiting for greater clarity on the economic outlook.

The broader US economy also remains resilient. Gross domestic product expanded at an annualized rate of 1.6% in the first quarter, while estimates from the Atlanta Fed currently point to growth of around 3% in the second quarter.