The labor market delivered another whopping win on Friday: 172,000 jobs in May, when economists had expected 88,000.
The even stronger surprise was in the rearview mirror: March was revised up by 29,000 to 214,000, April by 64,000 to 179,000. Combined, the two months were 93,000 stronger than previously reported.
Though such a strong labor market is good news for those fearing the economy was stalling—or that AI was eating jobs—it could make investors wince. The strong print could kill what has been left of rate-cut hopes for this year, especially as inflation persists and the conflict in Iran drags on. The 10-year bond yield jumped about 6 basis points to above 4.5%.
Unemployment held at 4.3%, however, where it’s been parked since last July, so the report’s other wildcard is defused.
The job market is rebounding in 2026 after a limpish 2025. After all the revisions were said and done, the economy added roughly 10,000 jobs a month in 2025. So far in 2026, it’s averaging 114,000.
Under the hood, however, the hiring is still relatively concentrated. Leisure and hospitality added 70,000 jobs in May—five times its 12-month average—with restaurants and bars alone hiring 48,000. Local government added 55,000, and health care 35,000. That’s the whole party. Meanwhile, financial activities cut 22,000 jobs and is down 107,000 from its peak a year ago, and transportation and warehousing has shed 92,000 since early 2025.
Paychecks also don’t seem to be keeping up. Average hourly earnings rose 3.4% over the year—the slowest pace in four years, and below inflation running near 4%. Americans are getting hired faster and paid less, in real terms, simultaneously.
Which brings us back to the economy’s trap. For the Fed, which meets June 16–17, a labor market this resilient is yet one more reason to sit on its hands. Rates parked at 3.50%–3.75% mean borrowing costs—particularly mortgage rates—stay elevated too.
“Robust hiring drives household formation, keeps homebuyer demand resilient, and helps existing homeowners stay current on their mortgages,” said Selma Hepp, chief economist at Cotality. “On the other hand, a hot labor market signals to the Federal Reserve that rate cuts may be delayed… higher-for-longer mortgage rates will continue to strain affordability and keep a tight lid on inventory for the rest of the year.”
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