The Job Market Has Turned a Corner
The May jobs report blew past expectations, with hiring finally broadening beyond healthcare. The bad news now is inflation, not jobs.
Photo credit: Diane Picchiottino
In the second half of 2025 — in the shadow of tariffs, D.O.G.E. and other drivers of uncertainty — private sector job growth in the U.S. ground to a halt. But in 2026, the story shifted in a decidedly more optimistic direction. In May, the labor market added 172,000 net new jobs, compared to expectations for a gain of 88,000; this solid May reading comes on the heels of 176,000 jobs added in April.
Zooming beyond the spring months shows a clear inflection point. Over the six months through May, private sector job growth has averaged a respectable 87,000 jobs. Compare that to the prior six months (May 2025 to November 2025) when that average was a paltry 17,000. There is clear evidence that job growth has turned a corner, reaccelerating above the “breakeven” rate needed to keep pace with population growth. This is good news.
Industry insights
Yes, healthcare continues to be the primary driver of employment gains, but growth has become slightly more diversified across other sectors. In May, healthcare and social assistance added 47,200 jobs. But the leisure and hospitality sector had its best month in over three years, growing by 70,000 jobs; it’s averaging gains of 48,000 over the past three months. Construction continues to (um) build up, averaging 14,000 jobs on a three-month basis.
The wonky “diffusion index,” which measures the breadth of job growth (by calculating the share of sectors with expanding employment) has ticked up to 51.8% on a six-month basis. The story is no longer just healthcare.
One sector showing signs of life after a long period of weakness is warehousing and storage, where job growth rose by 6,400 in May. On the surface, this may not seem like much, but the industry lost 45,000 jobs in 2025 while grappling with the sudden shock of tariffs — that uncertainty has since eased following the Supreme Court decision.
Air transportation employment fell by 8,700 in May, potentially due to Spirit Airlines ceasing operations. The airline abruptly laid off 17,000 workers at the start of the month, resulting in the Department of Labor stepping in and providing immediate worker assistance. Furthermore, the industry is grappling with higher fuel costs, leading several airlines to scale back flight plans — a sign the Iran war is having an impact on the labor market.
Labor force insights
Big picture, workers are highly employed. The unemployment rate was flat at 4.3%. And for prime-age workers (those 25-to-54), the employed share has remained unchanged at around 81% for...three years. Yes, the job-finding rate is still low at around 25% meaning it is still hard to find work if you’re actively looking. But layoffs have been very low, so for the most part workers are doing OK.
Despite the healthy pace of job growth, wage pressures continue to moderate, as average hourly earnings rose by 3.4% over the year. As indicated by the JOLTS report released earlier this week, quits continue to decline, reducing employers’ need to backfill roles. When accounting for the recent spike in oil prices, workers’ pay is likely not keeping pace with inflation.
Taking a broader perspective, the May jobs numbers are good, and the labor market is no longer the biggest source of worry in the economy. That distinction belongs to inflation. To the extent that workers are suffering, it’s largely because the Iran-War-induced spike in energy prices is pushing inflation higher and pushing real wage growth down (perhaps even negative). The Fed, and the American people, are rightly going to focus on prices, not jobs, soon.
What does this mean for recruiters?
The labor market in 2026 has materially improved from 2025, dominated by trade uncertainty, immigration restrictions, and a Federal government hiring freeze. For recruiters hiring for in-person roles — like restaurants, healthcare or construction — hiring competition has likely intensified over the past several months (or never cooled off).