May jobs data blows past estimates as labor market shows strength. This is what it means for advisors

The latest employment data crushed estimates early Friday, providing a clear sign to advisors and investors that U.S. economy is in decent shape.

Total nonfarm payroll employment rose by 172,000 in May and the unemployment rate was unchanged at 4.3%, according to the Bureau of Labor Statistics.

Economists surveyed by Dow Jones Newswires and the Wall Street Journal were looking for nonfarm payrolls to increase by 80,000 and the unemployment rate to stay unchanged at 4.3% for the third straight month. Economists surveyed by Reuters were looking for nonfarm payrolls to increase by 85,000 and the unemployment rate to stay unchanged at 4.3%.

There were job gains in leisure and hospitality, local government, and healthcare, the Bureau of Labor Statistics said, while employment in financial activities declined.

“No doubt, Americans continue to be anxious about the economic outlook, which makes sense given rising inflation and AI’s continuing impact on jobs and hiring,” said Katie Klingensmith, chief investment strategist at Edelman Financial Engines, in a note. “But what today’s numbers ultimately show is that the U.S. economy is in solid shape – and farther from a recession than many had feared.”

Citing recent PPI data and household surveys, Klingensmith said that inflation will likely continue to rise, and noted that the stage could potential set for the Fed to raise rates. “A strong job market gives the Fed ample room to hike rates, but the pressure on the Fed to find the right balance is going to be intense,” she said. “It’s our expectation that inflation continues to be a top priority on the FOMC’s agenda – and that market conditions will prompt a rate increase at some point over the next year.”

The jobs data certainly adds another factor to the economic playing field that new Fed chair Kevin Warsh has entered. "If you were pressed for a conclusion [from the latest jobs data], you could say the non-AI economy (health care, local government, hospitality) is picking up," said Brad Conger, chief investment officer at Hirtle & Co., in a note. "Meanwhile, the AI impacted roles (financial, professional services) might be showing some displacement."

"What is not a stretch is to say that Warsh is going to face a very conflicted FOMC," he added.

Warsh was President Donald Trump’s nominee to succeed Jerome Powell, who had repeatedly resisted calls from the president to lower interest rates. At its latest meeting in April, the central bank stuck to its path of keeping its policy rate steady at 3.5% to 3.75%, once again shrugging off pressure from Trump to cut interest rates. The Fed made its last rate cut in December 2025.

"If the economy can continue to create jobs and the unemployment rate can stay low (currently at 4.3%) all while keeping inflation under control, we could be in the sweet spot," said Chris Zaccarelli, chief investment officer for Northlight Asset Management, in a note. "The Fed won’t be able to cut rates with inflation this high, but if it is staying under control – especially with the disruptions in the Strait of Hormuz – then they won’t feel pressure to raise rates either."

The S&P 500 index is down 1.4% in the wake of the latest jobs data.

Employment gains were 115,000 in April and 178,000 in March, although the latter number was upwardly revised to 185,000.