May Jobs Report Preview: How "Job-Hugging" & AI Layoffs Shift the Market

The resilient hiring streak seen earlier this year is facing a major reality check as the Bureau

of Labor Statistics (BLS) prepares to release its May nonfarm payrolls report. Economists

project a significant slowdown in job creation, highlighting a widening gap between

corporate restructuring and employee behavior.

Wall Street Anticipates a Steep Hiring Slowdown

According to a consensus survey by Dow Jones, economists expect the U.S. economy to

have added just 80,000 jobs in May. This marks a sharp decline from the 150,000 monthly

average recorded over the prior two months.

While the consensus expects the unemployment rate to hold steady at 4.3%, several major Wall Street institutions are forecasting much more conservative figures:

• Goldman Sachs: Predicts a modest gain of 60,000 jobs, citing a deceleration in

real-time big data labor indicators.

• EY-Parthenon: Projects an increase of 50,000 jobs, noting an upside bias that could

edge the unemployment rate up to 4.4%.

• Vanguard: Forecasts the lowest figure at a mere 20,000 jobs, viewing the slowdown as a natural payback period after unseasonably warm winter weather artificially boosted hiring earlier in the year.

The “Job-Hugging” Phenomenon Driving Stagnation

A primary driver behind this cooling labor market is a trend experts call “job-hugging”

a behavioral shift where employees choose to cling to their current roles rather than risk

switching jobs in an uncertain economic climate.

While job openings saw a surprise jump in April, the number of workers voluntarily quitting

their jobs has plummeted to its lowest level since August 2020.

“We're continuing to hear and see the low-hire, low-fire sentiment,” explains Laura Ullrich,

director of economic research at Indeed Hiring Lab. If you have a job, it's OK right now. But

if you're looking for a job, it's a very hard time to find a job because hires are so low.

This dual caution from both employers and workers has created a stagnant macroeconomic environment where labor supply and demand are slowing down in sync.

The Layoff Paradox: AI Restructuring Hits Record Highs

In stark contrast to the general “low-fire” sentiment among core personnel, targeted

corporate downsizings are escalating rapidly. Data from Challenger, Gray & Christmas reveals that planned job cuts reached 97,006 in May—a 16% month-over-month increase and the

highest total for the month of May since the 2020 pandemic.

The driving force behind this surge is structural rather than financial. Corporate restructuring tied directly to Artificial Intelligence (AI) accounted for 38,242 layoffs, marking the highest

single-month total since data collection on AI-driven job losses began three years ago.

What This Means for Federal Reserve Monetary Policy

For the Federal Reserve, a stagnant labor market paired with sticky inflation presents a

highly complex backdrop. Market participants are pricing in near-zero probability of an

interest rate change at the upcoming Federal Open Market Committee (FOMC) meeting on

June 16-17, with expectations growing that the rate pause will extend through the end of

2026.

Gregory Daco, chief economist at EY-Parthenon, notes that a stable yet cooling labor market gives central bank officials room to maintain a hawkish stance. Policymakers are highly likely to emphasize that additional interest rate hikes remain firmly on the table in early 2027 if

inflation proves more persistent than anticipated.

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