May Jobs Report Preview: Labor Market Shows Signs of Reset as Hiring Broadens Beyond Healthcare

When the Bureau of Labor Statistics releases its May employment report on Friday, economists expect it to show the US economy added 105,000 jobs with the unemployment rate holding steady at 4.3%. If those forecasts hold — and prior months aren't revised sharply lower — it would mark three consecutive months of 100,000-plus job gains, a streak not seen since early 2024.

But the headline number only tells part of the story. The American labor market is in the middle of a complex evolution shaped by structural shifts, an ongoing technology transformation, and external pressures that make simple assessments of its health increasingly unreliable.

"It's just in this place where we're really resetting a new normal, what normal is going to look like, and what a 'good jobs report' will look like moving forward, which is different than it was pre-pandemic and from historical trends," said Nicole Bachaud, ZipRecruiter's chief economist.

For roughly two years, healthcare and social assistance — a sector buoyed by an aging population and accounting for 15% of overall employment — has been virtually the entire engine of job growth. Other sectors have either stagnated or declined. That single-note dynamic has been a persistent concern among economists.

Nela Richardson, chief economist at ADP, described it bluntly: "Basically, all the job gains came from healthcare. Nothing in manufacturing. Construction ebbs and flows with cyclical interest rates. And no sense of broad-based hiring."

That may be starting to change. ADP's recent monthly employment reports, including the May data released this week, show job gains picking up across a wider array of industries in the private sector. Friday's Diffusion Index — a metric measuring how many industries are adding jobs versus shedding them, with any number above 50 indicating net expansion — will be a critical indicator of whether this broadening is real.

The wage growth picture has also shifted. For three years following the pandemic, wage gains outpaced inflation, giving workers real income growth despite rising prices. That changed in April when the oil supply crunch triggered by the US-Israeli conflict with Iran pushed inflation to 3.8%, exceeding the 3.6% rate of average hourly earnings growth. Workers are now effectively losing purchasing power.

Dean Baker, senior economist at the Center for Economic and Policy Research, framed the dilemma clearly: an uptick in wage growth would help workers struggling with higher prices, but it would also push the Federal Reserve toward rate hikes — a move that could slow hiring further.

Several one-off factors will complicate Friday's reading. The shutdown of Spirit Airlines on May 2, which eliminated 17,000 jobs, is expected to show up primarily in the transportation sector. Layoff announcements rose 16% from April to May, according to Challenger, Gray & Christmas, with technology firms accounting for the largest share and artificial intelligence once again leading the stated reasons for reductions. However, economists note that unemployment insurance claims remain near historic lows, suggesting that announced layoffs are not translating into sustained labor market deterioration.

The AI factor remains more of a whisper than a roar in terms of direct employment impact. "We've yet to see any widespread job displacement or really widespread growth," Bachaud said. Instead, AI's fingerprints are showing up in shifting job descriptions, blurred role boundaries, and a growing mismatch between the skills employers want and the skills job seekers possess. That mismatch helps explain the peculiar data from April, when job openings spiked while hiring remained flat.

Richardson argues that demographics — not AI — remain the most powerful force shaping the labor market. The aging of the workforce is creating structural shortages that overwhelm whatever efficiency gains AI might produce in the near term.

Uncertainty, which has been the dominant theme for hiring managers over the past year, may finally be easing. Eugenio Aleman, chief economist at Raymond James, cited two reasons: businesses have more clarity on tariffs, and firms have learned from the volatility of the past year and are moving ahead with employment decisions, especially as the economy continues to grow.

What This Means For You: If you're job hunting, the broadening of hiring beyond healthcare is encouraging — but don't expect a return to 2022's red-hot market. The new normal is slower, more selective, and increasingly tilted toward roles that require specific technical skills. If you're an employer, the easing of uncertainty means this may be a good time to lock in talent before competition intensifies. And if you're watching your paycheck, the fact that wage growth now trails inflation means your real income is shrinking — budget accordingly until the labor market strengthens enough to push wages back above the inflation line.