Against the backdrop of ongoing tensions in the Middle East, the US labor market is facing dual pressures from exogenous shocks and intrinsic slowdowns. The March non-farm payroll report, scheduled for release at 20:30 tonight, not only marks the first major data point following the US and Israel's military strike against Iran but is also seen as a crucial indicator for assessing the true momentum of the job market and the Federal Reserve’s policy trajectory.
Job growth momentum is nearing stagnation, with structural slowdowns already evident before the conflict.
Market consensus forecasts indicate that the US non-farm payroll population is expected to increase by 60,000 in March, while the unemployment rate is anticipated to remain at 4.4%. Regarding wage data, the average hourly earnings month-over-month and year-over-year rates are projected to reach 0.3% and 3.7%, respectively, slightly lower than previous figures.
Prior to the outbreak of the conflict, signs of weakness were already apparent in the US job market. A significant and unexpected decline of 92,000 jobs in February’s non-farm payroll became the starting point for markets to reassess the health of the labor market.
Although some of the weakness can be attributed to the elevated baseline caused by exceptionally favorable weather conditions in January, when observing December through February collectively, the three-month average job growth remains below the level required to sustain natural labor force expansion, indicating that the buffer capacity of the job market is narrowing.
The cooling trend in hiring is equally evident. Data shows that JOLTS job openings in February fell to 6.882 million, with the hiring rate hitting its lowest level since April 2020, reflecting a notable decline in companies’ willingness to expand. Amid tariff policies and economic uncertainty, businesses had already become more cautious, while the Iran conflict further amplified this uncertainty.
Industry divergence intensifies, with employment concentrated heavily in specific sectors.
Over the past year, nearly all new jobs added in the US have come from healthcare and social assistance, with industries such as retail, manufacturing, and mining generally stagnant or losing positions. The foodservice industry has been one of the few bright spots, adding 129,000 jobs between February 2025 and February 2026, but it now faces downward pressure.
Energy prices have risen due to the Iran conflict, with gasoline costs squeezing household incomes, prompting initial cuts in dining expenditures. Real spending on fast food has been continuously declining since September last year, compounded by a stock market downturn that has weakened consumption capacity among high-income groups, thereby reducing support for the foodservice sector. If hiring turns negative, it will directly drag down overall employment.
Traditional industries continue to face pressure. Manufacturing has seen an average monthly loss of 13,000 jobs over the past two years, with this trend persisting. Construction activity has essentially stalled, with rising interest rates further suppressing demand and employment.
Healthcare remains the primary source of growth, with the resumption of work in March expected to provide a short-term boost to data. Additionally, employment at the state and local government levels has stagnated since October last year and is unlikely to generate new momentum amid fiscal tightening.
Energy shocks transmit into the economy, creating a negative cycle between hiring and consumption.
The Iran conflict has had widespread effects on the economy through energy price channels. Brent crude oil prices surged from around $70 before the conflict to near $115, significantly increasing costs for transportation, production, and daily living. On the corporate side, rising costs combined with demand uncertainty have prompted companies to reassess their hiring plans.
Consumer goods giant Unilever has announced a three-month hiring freeze, explicitly attributing the decision to uncertainties in the macroeconomic and geopolitical environment. Economists widely believe that companies unable to predict future cost structures and demand trajectories will tend to delay hiring or even cut expansion plans.
Consumers are also under pressure. Higher fuel expenditures mean reduced budgets for other goods and services, with non-essential spending such as travel, entertainment, and dining out being hit first. This contraction in demand will further feed back to businesses, creating a negative cycle between 'demand and hiring.'
Unemployment rate shows a moderate upward trend, with more pronounced pressure on vulnerable groups.
The unemployment rate has shown a gradual upward trend overall. From 4.0% in January 2025, it rose to 4.6% in November, with recent fluctuations including a rise to 4.4% in February and an expectation to remain unchanged in March.
By demographic group, the pressure on vulnerable populations is more evident. The unemployment rate for Black workers reached 8.2% in November last year and rebounded to 7.7% in February; for young people aged 20 to 24, the unemployment rate surged significantly in 2025 before stabilizing at 7.4% in February. These two groups are more sensitive to economic cycles and are expected to continue facing pressure as demand weakens.
Graduates with university degrees have also seen marginal deterioration. Although their unemployment rate is 3.0%, still below the overall level, it has increased by 0.5 percentage points compared to a year ago, reaching its highest since February 2021. The replacement of some entry-level positions by artificial intelligence technology is considered a potential contributing factor.
Data revisions amplify uncertainty, leaving policy facing a 'stagflation-like' dilemma.
It is worth noting that the credibility of employment data itself is declining. Analysts believe that the U.S. labor market has entered a 'high revision mechanism,' reducing the informational value of single data releases, and judgments must rely on multiple data sources and time-series trends.
For the Federal Reserve, the current situation represents a classic 'stagflationary' trade-off. On one hand, a slowdown in the labor market provides justification for rate cuts; on the other hand, rising energy prices could push inflation higher, limiting policy space.
The federal funds rate is currently maintained between 3.50% and 3.75%. The market broadly anticipates that March's nonfarm payroll growth will be around 60,000, within a moderate recovery range. Under these circumstances, the Federal Reserve will most likely continue to adopt a wait-and-see approach, focusing on whether inflation expectations rise due to energy shocks.
If employment data weakens significantly alongside a rise in the unemployment rate, the policy balance will tilt towards 'supporting growth.' Conversely, if employment and wage performance exceed expectations, rate cut expectations may be further delayed amid energy price volatility.
Overall, the U.S. labor market is in a state of 'continual weakening but not yet disorderly.' The current impact is primarily reflected in price pressures, with direct effects on employment remaining relatively limited. Weekly unemployment insurance claims data indicate that the labor market has not deteriorated significantly and has even shown some recent improvement.
However, from a structural and trend perspective, risks are accumulating. Initial impacts are more likely to manifest in slower hiring rather than increased layoffs. If hiring continues to contract, it will gradually affect total employment, wage growth, and consumer demand, leading to a broader economic slowdown.
Since the March employment survey was conducted mid-month, the data only reflects the impact of the initial two weeks of the conflict. The true extent of the shock will need to be progressively verified through subsequent months of data.