After experiencing significant volatility in employment data in the first two months of the year, the market generally expects a moderate recovery in the U.S. job market in March.
The U.S. Bureau of Labor Statistics will release the March nonfarm payroll report at 20:30 Beijing time on Friday. The U.S. stock market will be closed that day due to the Good Friday holiday. After experiencing significant fluctuations in employment data in the first two months of the year, the market widely expects a moderate recovery in the U.S. labor market in March.
However, this report can only partially reflect the true state of the labor market. The ongoing escalation of geopolitical conflicts in the Middle East, the increasing substitution effect of artificial intelligence (AI) on employment, and structural shifts within the U.S. labor market itself are posing significant downside risks to future employment prospects.
Following sharp volatility in early-year data, March employment is expected to return to normalization.
Based on the consensus forecast from FactSet, non-farm payrolls in the U.S. are expected to increase by only 60,000 in March, with the unemployment rate remaining at 4.4%. If this growth rate materializes, it will be far below the standards of recent years. However, considering the unique environment of the current labor market, this may actually represent a form of 'normalization.'
Looking back, January saw an addition of 126,000 jobs (stronger than expected), while February unexpectedly recorded a loss of 92,000 jobs. The significant fluctuations in employment data since the start of the year do not fully reflect trend-based changes in the labor market; multiple special factors were the main drivers:
First, extreme weather and misaligned holiday hiring schedules significantly disrupted employment statistics at the beginning of the year.
Second, strike events had a dual impact—more than 30,000 striking workers left their jobs in February, directly lowering that month's employment data, while the return of 32,000 previously striking workers from Starbucks (SBUX.US) and Kaiser Permanente in March will provide a positive boost to that month’s employment figures.
Third, recalibration of the U.S. Bureau of Labor Statistics' methodology for counting employment in newly established and closed businesses, while expected to reduce the magnitude of annual data revisions, has also increased the volatility of monthly data.
Lydia Boussour, senior economist at EY-Parthenon, stated that excluding short-term boosts related to strikes, the addition of 60,000 jobs indicates that the U.S. labor market is gradually returning to normalization. She expects that employment in construction, transportation, and some retail sectors, which were affected by the weather, will show signs of recovery.
The healthcare sector emerges as a key focus, with the criteria for evaluating the labor market fundamentally rewritten.
In this upcoming report, the performance of the healthcare sector will become the market's core focus. As the central engine of U.S. job growth in recent years, the healthcare sector unexpectedly lost 28,000 jobs in February, directly dragging down overall employment performance for that month.
Leading indicators suggest that the healthcare sector remains the sole core pillar of the current U.S. labor market. According to ADP’s private employment report released on Wednesday for March, the private sector added 62,000 jobs, slightly exceeding market expectations, with 58,000 of these new jobs coming from the healthcare sector. However, ADP chief economist Nela Richardson pointed out that hidden concerns lie behind this growth—the majority of new positions were low-paying home health aide roles rather than full-time positions with complete benefits, offering very limited support for household consumption. Data shows that over the past year, excluding the healthcare sector, the U.S. labor market would record a net loss of more than 500,000 jobs.
Meanwhile, the U.S. labor market is undergoing profound structural changes, and the criteria for evaluating 'healthy employment data' have been completely rewritten. Guy Berger, chief economist at Homebase, stated that the market needs to redefine what constitutes good or bad employment data, as job losses that would have previously triggered recession fears no longer cause excessive market fluctuations today.
The latest research from the Federal Reserve Bank of St. Louis shows that the monthly breakeven point for job growth required to maintain a stable unemployment rate in the United States has dropped to as low as 15,000 jobs, with an upper limit of only 87,000 jobs—a significant decline compared to the estimated value of 153,000 jobs in April 2025. In August 2025, the institution's reported breakeven range was still between 32,000 and 82,000 jobs. This indicates that the U.S. labor market no longer requires the previously high levels of job creation to sustain full employment.
Due to immigration restrictions, demographic shifts, and geopolitical uncertainties, U.S. companies have maintained a state of 'low hiring, low layoffs' for more than a year, causing the labor market to stagnate overall. Earlier data from the Department of Labor showed that the U.S. labor market hiring rate fell to 3.1%, the lowest level since the pandemic-induced recession in 2020; the last time a lower figure was recorded was in January 2011.
The latest unemployment claims data shows that the number of initial jobless claims in the U.S. fell to 202,000 last week, close to the lowest point since 2026; corporate layoff announcements in Q1 2026 also hit the lowest level since 2022. Although layoff announcements increased in March, there are still no signs of large-scale layoffs.
Nevertheless, concerns about a potential economic downturn are mounting. Institutions such as Goldman Sachs and Moody's Analytics have recently raised the probability of a U.S. economic recession within the next 12 months. EY-Parthenon has increased its estimated recession probability to 40%, predicting that the U.S. labor market will be largely frozen in 2026, with hiring becoming more selective, wage growth under continued pressure, and businesses advancing strategic workforce adjustments.
The effect of AI-related layoffs becomes apparent, with Middle East conflicts posing the greatest uncertainty.
Notably, AI is becoming a new source of downward pressure on the U.S. labor market. The latest report from global outplacement firm Challenger, Gray & Christmas revealed that planned layoffs announced by U.S. companies in March reached 60,620, of which 15,341 were directly attributed to AI.
"Companies are tilting their budgets toward AI investments at the expense of employment," said Andy Challenger, the firm’s Chief Revenue Officer. The technology sector has already seen AI replace coding positions, while other industries are testing the boundaries of this new technology’s applications. Although AI cannot fully replace jobs, it has undeniably caused job losses.
More concerning for markets is that the escalating geopolitical conflict in the Middle East could resonate with AI-driven displacement effects, further impacting the U.S. labor market. The conflict triggered by the U.S. and Israel's strike on Iran on February 28 is entering its sixth week. Shipping disruptions in the Strait of Hormuz have caused supply chain tensions, sending shockwaves across global markets. Rising domestic gasoline prices and transportation costs in the U.S. have fueled fears that the conflict’s impact will quickly spread throughout the economy.
Economists generally anticipate that since the employment survey for the nonfarm payrolls report was conducted mid-month, it could only capture the early impacts of the conflict. Moreover, geopolitical uncertainties tend to lead companies to pause hiring plans rather than implement large-scale layoffs immediately. Thus, this conflict is unlikely to significantly affect March employment data. However, should the duration and scale of the conflict expand further, its lagging impact on the labor market will become evident.
Audrey Guo, Assistant Professor of Economics at the Leavey School of Business, Santa Clara University, stated that if the conflict persists and energy prices remain elevated, companies seeking cost reductions will accelerate AI adoption to lower labor costs, amplifying AI’s displacement effects on employment.
Joe Brusuelas, Chief Economist at RSM US, bluntly stated that rising energy costs would affect all households and sectors, leaving no industry unscathed. Surging oil prices and shortages of key materials like fertilizers will rapidly drive up prices across all categories of goods and services, squeezing disposable income for households and leading to 'demand destruction.'
Dean Baker, co-founder of the Center for Economic and Policy Research, pointed out that discretionary consumption is expected to bear the brunt, and the foodservice industry has been the only major source of employment growth in the U.S. apart from healthcare and social assistance. If high-income households cut back on dining-out spending due to a stock market decline, this will place significant pressure on the overall labor market. Brusuelas further noted that if diesel prices remain above $5 per gallon, industries such as transportation, manufacturing, and agriculture will be forced to scale back investment and workforce size.
"Due to the impact, we have revised our unemployment rate forecast for this year from 4.3% to 4.7%," said Brusuelas. "However, we expect this change to become evident only by mid-year or the end of the year."
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