May's Non-Farm Payroll Data Paints Complex Picture: Job Growth Moderates Amid Policy Uncertainty

May’s employment report, released in early June 2025, delivered mixed signals that could reshape Federal Reserve policy expectations. The non-farm payroll increased by 139,000 positions, marginally exceeding the consensus forecast of 130,000 new jobs. However, the headline number masks a troubling underlying trend: employment growth has noticeably decelerated, driven by mounting uncertainty surrounding trade policy and immigration enforcement. The unemployment rate remained flat at 4.2% for the third consecutive month, a stagnation that may paradoxically work in the Fed’s favor.

Employment Numbers Beat Forecasts But Reveal Underlying Softness

The non-farm payroll strength came with a caveat—the prior month’s figure was revised downward to 147,000 from an initially reported higher level, indicating that job growth momentum has been deteriorating. U.S. labor markets require roughly 100,000 new positions monthly just to accommodate population growth, meaning this month’s net addition of 139,000 provides minimal room for labor market tightening. The stagnant unemployment rate suggests that much of the employment gain reflects job switching rather than fresh hiring—a sign that companies may be reluctant to expand headcount in the current environment.

Corporate Caution: Why Companies Are Hoarding Workers Instead of Hiring

Behind the employment numbers lies a critical dynamic: employers are adopting defensive strategies rather than pursuing growth. Companies appear to be stockpiling workers to hedge against the volatility created by Trump’s wavering tariff policies. This worker-hoarding behavior, while temporarily supporting payroll growth, actually undermines business confidence and reduces companies’ ability to adapt quickly to changing market conditions. The uncertainty extends beyond tariffs—hard-line conservative Republicans in Congress, alongside figures like Elon Musk, are blocking Trump’s tax cuts and spending proposals, adding yet another layer of policy ambiguity that discourages aggressive hiring decisions.

Immigration Policy as an Employment Wild Card

Adding to this complexity, the Trump administration’s crackdown on immigration and the revocation of temporary legal status for hundreds of thousands of immigrants introduces an unpredictable element to the labor supply equation. If implemented broadly, this policy could significantly reduce the monthly job creation requirements below the current 100,000 baseline, potentially easing the pressure on both businesses and policymakers. However, this same uncertainty may paradoxically incentivize some employers to hire preemptively before further policy changes take effect.

Fed Rate Cuts Pushed to the Sidelines

The combination of steady unemployment and moderating non-farm payroll growth creates the conditions for the Federal Reserve to remain inactive through much of 2026. Financial markets are now pricing in a scenario where the central bank maintains its benchmark overnight interest rate in the 4.25%-4.50% range through at least the end of the current period, with any accommodative policy shifts postponed until September at the earliest. This wait-and-see approach reflects the Fed’s own hesitation: without clearer signals on inflation, employment, and policy direction, aggressive rate reductions would be premature. The non-farm payroll data, rather than triggering immediate policy action, has reinforced the case for patience.