Where are the jobs? Exploring the May 2025 Labor Market

Author Bahiyah Shabazz

The United States labor market added 139,000 jobs in May 2025, offering a mixed view of economic resilience and emerging structural challenges. While this figure was slightly above analysts’ expectations, it still reflects a gradual cooling in employment growth. The unemployment rate held steady at 4.2% for the third consecutive month, a signal that labor demand is relaxing.

At the sectoral level, the health care industry was once again the primary engine of job growth, adding approximately 62,000 positions, which was well above its 12-month average of 44,000. This growth was driven by increased demand in outpatient care centers, home health services, and hospitals responding to an aging population and a post-pandemic focus on wellness infrastructure. Leisure and hospitality also showed strength, contributing to around 48,000 jobs, particularly in restaurants and bars. Social assistance roles expanded modestly with a gain of 16,000 jobs, helped by new funding and increased demand for family support services.

What’s Really Happening

This growth was not even across the economy. Federal government employment dropped by about 22,000 jobs, marking one of the steepest declines in recent years. This drop follows cost-cutting efforts and a wave of layoffs stemming from administrative restructuring and a shift in budget priorities. Manufacturing, retail trade, and professional and business services also posted small losses or saw job creation stall.

Beneath the topline numbers, deeper structural dynamics are shaping the labor market. Labor-force participation fell to 62.4%, its lowest level in three years. This suggests that the slower pace of hiring is not solely due to fewer job openings. It also reflects a shrinking pool of active workers. Whether driven by retirements, lack of affordable childcare, or persistent health concerns, the withdrawal from the workforce is a troubling trend for long-term economic productivity.

Revisions to previous months’ job figures is less optimistic than initially reported. March and April’s employment gains were collectively revised downward by 95,000 jobs, a substantial adjustment that destroys confidence in the strength of the labor recovery. Economist Samuel Tombs of Pantheon Macroeconomics cautioned, “May’s figure is likely to be revised down to about 100,000. Earlier months’ estimates have already been sharply cut.” He added that declining consumer activity was exacerbated by tariffs and elevated prices, which may lead sectors like retail, transport, and wholesale to collectively cut as many as 50,000 jobs by the end of the year.

Wage growth also showed signs of cooling. The average hourly earnings rose 3.9% year over year in May. This was the first time that the figure dipped below 4% since August 2021. While this is good news for inflation watchers and the Federal Reserve, it may be less so for households hoping to maintain their purchasing power amid still-high housing and service costs. Inflation remains around 2.4%, relatively contained, but the gap between cost of living and wage growth could widen if earnings stagnate further.

One of the more consequential but under-discussed elements shaping the May labor market is the sharp drop in the foreign-born labor force. Since March, the number of foreign-born workers has declined by over one million, according to preliminary estimates. Stricter immigration enforcement, delays in visa processing, and tighter border controls have all contributed to labor shortages in sectors heavily reliant on immigrant workers, such as agriculture, landscaping, food production, and eldercare. As a result, employers in these fields are struggling to fill roles, which could constrain economic output in the coming months.

Federal Reserve officials, for their part, are interpreting the slower pace of job growth with some optimism. Rather than seeing it as a sign of weakness, they argue it reflects a labor market adjusting to more sustainable conditions.

What This Means for Job Seekers and Employers

One recruiter noted in a recent interview, “Adaptability and networking are critical… due to a competitive hiring landscape.” This is particularly relevant for workers in sectors like tech, education, and retail, where automation, budget tightening, and declining enrollment or foot traffic are shifting the employment landscape. Job seekers are increasingly being told to re-skill or pivot into high-demand areas such as healthcare, logistics, AI, or green energy.

For employers, the current moment presents both opportunities and challenges. With wage growth moderating and a larger pool of underemployed or inactive workers, companies may feel less pressure to escalate pay. However, competition for skilled labor, especially in finance, IT, engineering, and healthcare, remains fierce. Organizations that invest in training, offer hybrid work flexibility, and signal long-term stability are more likely to attract top talent in a market that still values security after recent waves of corporate layoffs.

Policymakers, meanwhile, are at a crossroads. The decline in labor-force participation and the ongoing federal layoffs should be cause for concern. Initiatives that promote workforce re-entry, such as childcare subsidies, vocational retraining, and targeted immigration reform, could ease bottlenecks and unlock dormant economic potential. The decline in the foreign-born workforce needs attention if sectors dependent on this labor are to remain viable.

The labor market in May 2025 demonstrates a broader economic transition, one from rapid recovery to steady restructuring. Job growth continues, but more slowly and unevenly. The sectors that thrived in the pre-pandemic and stimulus-driven eras, such as e-commerce, real estate, and tech, are no longer the sole engines of employment. Instead, healthcare, hospitality, and social services are absorbing the largest share of job seekers, while government and goods-producing sectors downsize or stabilize.

This rebalancing creates both risk and resilience. The risk lies in worker displacement, declining participation, and mismatches between job openings and qualifications. The resilience comes from a service economy that, while evolving, is still generating employment and resisting broader recessionary pressure.

Ultimately, the question of “Where are the jobs?” has both a statistical and a strategic answer. Statistically, they are increasingly found in essential services and people-facing industries. Strategically, job seekers, employers, and policymakers must all align to ensure that the labor market remains inclusive, flexible, and prepared for the next economic cycle.

Follow Bahiyah Shabazz, MBA on LinkedIn.