May jobs report comes as inflation squeezes economy

The jobs report for May, set to be released Friday morning, is expected to show that hiring has remained steady despite growing inflation and energy prices triggered by the ongoing war in Iran.

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Economists polled by Dow Jones believe that the U.S. economy will have added 80,000 positions in May and that the unemployment rate will be unchanged, at a low 4.3%. Average hourly earnings, which fell below the rate of inflation in April, are expected to rise 0.3%. Wages are expected to rise 3.4% from a year ago.

In April, inflation sharply accelerated for a second month to 3.8%, its highest level in three years, because of the surging prices of oil and gas and their wider economic ripples. (The Bureau of Labor Statistics is scheduled to release May’s inflation numbers Wednesday.)

“We expect a third consecutive month of job growth in May,” Citigroup economist Veronica Clark said Monday, while cautioning that monthly jobs data has become more volatile this year.

“Recent large and rapid changes in the size and composition of the labor force due to slowing immigration could mean employment patterns shift throughout the year in unpredictable ways, increasing the monthly volatility of data,” she wrote.

Bank of America U.S. economist Shruti Mishra said Tuesday, “Education and health, where AI adoption has been slower and demographics remain a tailwind, should continue to lead job gains.” Those sectors have largely driven labor market gains over the last year.

“That said, we are likely to see some job growth broadening,” she said. Pointing to recent manufacturing data showing activity at a four-year high, Mishra said the trade and transportation category of the jobs report could be “relatively strong.”

Warm weather could boost the leisure and hospitality industry, and construction could benefit from demand for AI data centers, she added.

However, economists with Capital Economics warned that the Spirit Airlines bankruptcy on May 2 could dent the payrolls figure. Crushed by surging fuel costs, Spirit, which was already in bankruptcy, ceased all operations and laid off most of its 18,000 employees.

There are some good signs, too. On Tuesday, Bureau of Labor Statistics data showed job openings nationwide jumped in April to their highest level in nearly two years. The data also showed that layoffs declined from March.

Despite those signals, Fed officials are watching an economy on a knife’s edge. After the labor market contracted sharply in three months at the end of 2025 and again in February, any further sign of slowing could be a red flag and a potential sign that inflation from the war is biting.

“If recent data trends continue, it may soon be appropriate for policy to act to address the growing risks of persistently elevated inflation,” Beth Hammack, president of the Federal Reserve Bank of Cleveland, said Tuesday. Hammack is a voter on the Fed’s interest rate-setting committee. She added that “monetary policy may not be sufficiently restrictive to bring inflation down to 2%.”

Since the war with Iran started Feb. 28, the average price of retail gasoline has soared more than 40% as the price of U.S. crude oil has increased 30%.

But more troubling for economists is the 55% rise in the price of diesel fuel, which is used in shipping, farming, transportation and construction. It can quickly raise costs for consumers as the higher price is passed down across a number of industries.

Wholesale inflation — what businesses pay other businesses for goods and services — surged to 6% in April, according to BLS data released May 13. That was sharply higher than the 4.3% in March.

“If we wait for definitive evidence that high inflation has become embedded in the economy, it may require larger policy adjustments, at greater cost,” Hammack added.

Fed governor Lisa Cook said last week in a speech, “I want to be clear about my risk assessment: The risks remain tilted toward higher inflation.”

Cook also said trillions of dollars of AI investments could cause another price shock. Over the course of the last year, the prices of data center equipment, computer memory and chips have soared.