The U.S. non-farm payroll data for March will be released tonight, with the market expecting a strong rebound in employment from February's contraction, adding approximately 65,000 jobs. While the end of strikes and improved weather conditions have supported the recovery in the data, fluctuations in oil prices triggered by conflicts in the Middle East have heightened inflation risks, complicating the Federal Reserve’s prospects for rate cuts. Policymakers are now caught between balancing resilient employment and rising inflationary pressures.
The US non-farm payroll data for March will be released tonight, with the market expecting a strong rebound from February's significant contraction. However, the ongoing escalation in the Middle East situation is driving up inflationary pressures, complicating the Federal Reserve's policy outlook.
The market consensus anticipates an addition of 65,000 non-farm jobs in March, recovering sharply from the weak February figure, which saw a plunge of 92,000 jobs. The forecast range lies between -16,000 and +150,000. Goldman Sachs projects an increase of 70,000 jobs, higher than the market consensus, attributing approximately 32,000 jobs to the end of strikes and improved weather conditions. Barclays, on the other hand, remains relatively conservative, expecting an addition of 50,000 jobs. Meanwhile, the ADP employment report for March came in at 62,000, surpassing market expectations of 40,000, providing some basis for tonight’s figures.
More than a month after the outbreak of the Iran war, the continued blockade of the Strait of Hormuz has caused sharp fluctuations in oil prices, with inflation risks rising accordingly. Federal Reserve Governor Waller admitted that without this conflict, he might have leaned towards a rate cut following the last Federal Open Market Committee (FOMC) meeting. He also warned that if high oil prices persist, they could permeate into core inflation, significantly narrowing the Fed's ability to 'look through' one-off shocks. The Federal Reserve is currently maintaining its policy rate unchanged, adopting a wait-and-see stance.
The importance of tonight’s data lies in its role as a critical reference for the Federal Reserve to evaluate the resilience of the labor market — amidst renewed inflationary pressures due to geopolitical conflicts, the strength or weakness of employment data will directly influence market expectations regarding the timing of rate cuts.
A substantial rebound is expected, but analysts warn of correction risks.
The core expectation for the March non-farm payroll data is an addition of 65,000 jobs, contrasting sharply with February’s steep decline of 92,000. Private-sector employment is expected to rebound from -86,000 to +73,000. The unemployment rate is projected to remain unchanged at 4.4%, with average hourly earnings anticipated to rise by 0.3% month-on-month (previous value: 0.4%) and maintain a year-on-year growth rate of 3.8%.
Notably, analysts widely caution attention to revision data. According to ING analysis, January data may have been overestimated, while February data could have been underestimated; this two-way distortion diminishes the reference value of single-month readings. ING maintains its forecast of 65,000 jobs, noting that if corporate hiring stagnates even under relatively stable economic conditions, heightened geopolitical and economic uncertainty will only further weaken companies’ motivation to expand recruitment.
Forward-looking indicators show divergence. The ADP employment report for March added 62,000 jobs, surpassing expectations. Initial claims for unemployment benefits dropped to 205,000 during the survey week, below the expected 215,000. Continuing claims for unemployment benefits also fell slightly from 1.833 million to 1.819 million. However, the ISM manufacturing employment sub-index edged down from 48.8 to 48.7, with both manufacturing and services employment sub-index indicators remaining in contraction territory, signaling weaker employer surveys.
End of strikes and improved weather, two key drivers supporting the rebound.
Goldman Sachs pointed out that two technical factors will provide substantial support to the March employment data.
First, the end of worker strikes. The strike report from the U.S. Bureau of Labor Statistics indicates that the conclusion of strikes will contribute approximately 32,000 additional jobs to the March non-farm payroll. Second, improved weather conditions. In February, severe weather had dragged down employment in climate-sensitive industries by 38,000 jobs; however, with March showing a month-on-month improvement in weather conditions, related industries are expected to see a rebound in employment.
Additionally, data on unemployment claims also present a positive signal. During the survey week in March, the average initial claims decreased from 220,000 in February to 211,000. Although Challenger, Gray & Christmas reported a month-on-month increase of 12,000 in corporate layoff announcements, bringing the total to 61,000, the overall figure remains within a relatively moderate range.
Federal workforce reductions and AI-driven layoffs represent structural drags on employment.
Goldman Sachs forecasts a reduction of 5,000 jobs in government employment, including a decrease of approximately 10,000 in federal government positions, partially offset by an increase of 5,000 in state and local government jobs. The federal government’s ongoing hiring freeze policy is expected to continue suppressing government employment figures.
AI-driven layoffs in the technology sector also pose a potential drag. Block has announced plans to cut around 40% of its workforce, raising market concerns about the accelerating pace of companies replacing human labor with AI.$Oracle (ORCL.US)$Up to 10,000 employees were laid off following substantial AI investments, although it remains unclear whether these layoffs are directly linked to AI.
Conference Board data shows that consumer evaluations of the current job market remained largely unchanged—27.3% viewed job availability as "plentiful" (compared to 26.7% previously), while 21.5% found jobs "hard to get" (versus 21.0% previously). However, expectations for future job prospects have worsened: 15.4% anticipate more jobs in the future (down from 16.0%), while 27.9% expect fewer (up from 26.2%).
The Federal Reserve remains on hold, with inflation concerns outweighing employment considerations.
The Federal Reserve has maintained its policy rate unchanged, with only the notably dovish Miran dissenting in the most recent meeting, while other members generally agreed that the current policy stance is at an "appropriate level." Chairman Powell noted that a "significant majority" of FOMC members expressed concerns about "extremely low" job growth, and the labor market—particularly private-sector employment—is under close scrutiny, though employment risks have not yet dominated policy orientation.
Notably, changes in the "breakeven point" for non-farm employment warrant attention. Both Powell and Waller suggested that this threshold may now be approaching zero, influenced by a sharp decline in illegal immigration—reducing both the number of employed individuals (numerator) and the labor supply (denominator). Recent research from the St. Louis Fed estimated the breakeven point at between 15,000 and 87,000, noting that the "wide range reflects significant uncertainty in migration flows."
Waller made it clear that if the labor market weakens significantly in the second half of the year, he will support interest rate cuts; Williams expects the unemployment rate to decline slightly this year and next, and believes that the signals currently sent by the labor market are "mixed."
The continued blockade of Hormuz has become the biggest variable in inflation risks.
The war in Iran has been ongoing for about a month, with the blockade of the Strait of Hormuz causing significant fluctuations in the oil market. Its potential impact on inflation and monetary policy remains highly uncertain. Fed member Schmid warned that inflationary pressures caused by rising oil prices may not be temporary and will moderately drag on economic growth. Waller also pointed out that if high oil prices persist, they will transmit to core inflation, limiting the Fed’s room to maintain an accommodative stance based on the rationale of "looking through temporary shocks."
There have been several signs of easing at the diplomatic level recently. Trump stated that Iran's new president had sought a ceasefire, and the U.S. side said it would consider accepting it once the Strait of Hormuz reopens, adding that the U.S. would withdraw from Iran "fairly quickly." The Iranian president stated that Iran does not intend to prolong the war and is willing to end the conflict under the condition of receiving security guarantees against further attacks.
Progress in the ceasefire negotiations will become a key observation window for oil price trends and the Fed’s policy space, and its importance may be no less than tonight’s non-farm payroll data itself.
Editor/Rocky