US stocks plunged on Friday, with a ferocious sell-off of artificial intelligence chipmakers dragging the technology sector sharply lower and erasing gains from earlier in the week. The Nasdaq composite index tumbled 4 per cent, its worst single-day drop in more than a year, while the broader S&P 500 fell 2.6 per cent and the Dow Jones Industrial Average lost 1.3 per cent.
Jobs data beat expectations
The sell-off came on the same day the Bureau of Labor Statistics reported that the US economy added 172,000 nonfarm payroll jobs in May, a figure that far exceeded the 80,000 new positions economists had initially predicted. The unemployment rate held steady at 4.3 per cent, a level that has remained within a narrow band of 4.3 to 4.5 per cent since July last year.
Job figures for the previous two months were also revised higher. March’s total was raised by 29,000 to 214,000, and April’s by 64,000 to 179,000, giving a combined upward revision of 93,000 jobs — a sign that the labour market has been stronger than previously thought.
Leisure and hospitality was the standout sector, adding 70,000 positions in May, well above its average monthly gain of 14,000 over the prior twelve months. Within that, food services and drinking places accounted for 48,000 of the new jobs, driven partly by seasonal demand ahead of the summer holidays and the upcoming World Cup. Local government employment rose by 55,000, mostly outside education, as councils hired for summer operations such as parks and public works. Healthcare added 35,000 jobs, in line with its recent trend, with ambulatory health care services and home health care contributing the bulk of the gains. Social assistance added 12,000 jobs, and employment in mining, quarrying, and oil and gas extraction increased by 5,000.
Not all sectors shared in the growth. Financial activities lost 22,000 jobs and are now down 107,000 compared with a year earlier. The information sector – which covers parts of the technology industry – also shed jobs, as did natural resources and mining. Air transportation employment fell by nearly 9,000, largely because of the collapse of Spirit Airlines. Manufacturing and private educational services both contracted.
Private sector hiring was also solid, according to payroll firm ADP. Its National Employment Report showed 122,000 jobs were added in May, the largest monthly increase since January. ADP’s chief economist, Dr Nela Richardson, said hiring was “more broad-based in May than we’ve seen in the last few years”, noting that employers of every size and across most industries – except information and natural resources – were taking on staff. Small businesses alone added 67,000 jobs, matching the combined growth of mid-sized and large firms.
Underlying labour market weakness
Beneath the headline strength, the Bureau of Labor Statistics data also revealed signs of persistent slack. The number of job openings rose to 7.6 million in April – the highest in nearly two years – yet hiring failed to keep pace, and the rate at which workers voluntarily quit their jobs fell to its lowest level since mid-2020. Just 1.9 per cent of employees left their roles in April, a signal that workers are increasingly reluctant to change jobs amid economic uncertainty, which in turn makes it harder for those seeking new positions to find them.
Long-term unemployment remains a concern. The number of people jobless for 27 weeks or more stood at 2.0 million in May, little changed from the previous month but up by 524,000 over the past year. These long-term unemployed now account for 27.5 per cent of all jobless Americans. The labour force participation rate held steady at 61.8 per cent. The layoff and discharge rate remained stable at 1.1 per cent in April, with 1.7 million people losing or leaving their jobs that month.
The quits data, combined with the rise in job openings but sluggish hiring, points to what some economists describe as a “low-hire, low-fire” market – one in which employers post more roles but are not necessarily filling them at the same rate, and workers stay put rather than risk moving.
Inflation and Fed outlook
The stronger-than-expected jobs report lands at a time when inflation is again becoming the dominant concern for policymakers. Economists estimate that the annual rate of inflation could hit a three-year high of 4.2 per cent in May, fuelled by rising energy prices linked to the continuing conflict in the Middle East and the impact of tariffs on imported goods.
Average hourly earnings rose 0.3 per cent in May, giving a year-on-year increase of 3.4 per cent. But with inflation accelerating, real wages may have fallen for a second consecutive month. Average weekly earnings in the private sector were up 3.7 per cent year-on-year, supported by longer working hours.
The robust jobs numbers are likely to reinforce the Federal Reserve’s reluctance to cut interest rates. The central bank’s rate-setting committee is due to meet on 16-17 June, and economists widely expect it to hold the target range steady. Some have even begun to discuss the possibility of a rate hike if price pressures continue to build.
Political pressure for lower rates has been mounting. President Donald Trump and his advisers have made clear they expect the Fed’s new chair, Kevin Warsh – who succeeded Jerome Powell – to be receptive to calls for monetary easing. US Treasury Secretary Scott Bessent told a news conference last week: “We’ve got a Warsh Fed now. It’s a new day at the Fed … I had my first breakfast with Chair Warsh this morning, and I believe that he will do the right thing to balance inflation and growth.”
Even if the chairman favoured a cut, economists caution that securing a majority of the Fed’s twelve voting members would be difficult. At the committee’s last meeting in April, only one member voted in favour of lowering the target range for interest rates.
