The US non-farm payroll added 178,000 jobs in March, appearing strong on the surface. However, the average monthly gain over the past two months was only 22,500, and wage growth dropped to its lowest level since the post-pandemic reopening. The decline in the unemployment rate is attributed to nearly 400,000 Americans leaving the labor force entirely due to difficulties finding work. A larger variable comes from the Middle East: the closure of the Strait of Hormuz triggered energy market volatility, with high oil prices potentially offsetting 10% to 50% of the effects of Trump's tax cuts on a quarterly basis.
Behind a glowing employment report lies a more unsettling issue.
The non-farm payroll data for March, released by the US Department of Labor on April 4, seemingly provided some reassurance to the market on the surface—but the shadow of war and structural decline in employment are making this comfort increasingly fragile.
Employment surged by 178,000 in March, marking the highest increase in nearly 15 months and reversing a revised drop of 133,000 jobs in February. The unemployment rate also fell from its February high to 4.3%. Upon release of the data, the market briefly breathed a sigh of relief.
However, the decline in the unemployment rate was not due to a surge in job opportunities. The reality is that nearly 400,000 Americans exited the labor force last month. When jobs become harder to find, people simply give up looking.
Labor economist Guy Berger bluntly stated: "No one is talking about the job market re-accelerating anymore."
Average figures reveal true underlying trends.
Significant fluctuations in single-month data obscure the real operational rhythm of the job market.
When averaging February and March together, the monthly job growth was only about 22,500—closer to the actual baseline.
A deeper crisis lies in the fact that the US labor force participation rate dropped to 61.9% in March, the lowest in nearly five years. Excluding pandemic-related disruptions, this figure marks the lowest since 1976, when women began entering the workforce in large numbers. Gus Faucher, chief economist at PNC Financial Services, noted that aging demographics and recent restrictions on immigration are contributing to a sustained contraction in labor supply.
Another noteworthy detail: year-over-year wage growth for ordinary workers (non-management) has slowed to 3.5%, the lowest level in five years since the post-pandemic reopening. Slower wage growth implies weakening support for consumer purchasing power.
An unhealthy balance of 'low hiring, low layoffs'
The current US labor market exhibits an extremely contradictory characteristic: a lack of hiring momentum, yet companies are also reluctant to lay off workers.
Data shows that over the past year, the healthcare industry has been nearly the sole engine of job creation. Outside of healthcare, other sectors of the economy have been shedding jobs. In the past 12 months, the US economy generated only 327,000 jobs, far below the typical annual range of 1 million to 2 million positions.
"Hiring is at a low level, but layoffs are similarly at a low level," explained Bill Adams, Chief Economist at Fifth Third Bank. The four-week average of initial jobless claims fell to 207,000, a historically low figure. This state of 'neither hiring nor firing' has been termed by economists as a 'low hiring-low layoff' model, maintaining a delicate and fragile balance.
The Hormuz Shock: This Time It's Different
In recent years, the US job market has withstood aggressive interest rate hikes, regional banking crises, and tariff shocks, bending but not breaking each time.
However, according to The Wall Street Journal, this time the Iran war has led to the closure of the Strait of Hormuz, impacting the global energy supply chain in a fundamentally different way.
Estimates from the St. Louis Federal Reserve indicate that if oil prices remain at current levels, the additional quarterly spending on fuel by consumers could offset 10% to 50% of the effects of Trump’s tax cuts last year.
The logic is straightforward: every dollar spent on fuel means one less dollar going to restaurants, retailers, and the service sector—sectors that form the backbone of US employment.
Meanwhile, rising bond yields have pushed 30-year mortgage rates back up from 6% to about 6.5%. The much-anticipated recovery in real estate and the expected boost in construction employment now appear increasingly uncertain.
Consumers' buffer has almost run out.
The energy shock triggered by the Russia-Ukraine conflict in 2022 was weathered by consumers relying on excess savings accumulated during the pandemic.
This time, the situation is different.
Nathan Sheets, Chief Economist at Citigroup, pointed out that consumer savings buffers have largely been depleted, compounded by a slowdown in wage growth, significantly reducing households' ability to absorb price increases. He said, "What could defeat them is a significant deterioration in the job market."
Sheets compared the current job market to "an athlete in peak training condition" — years of absorbing shocks have made businesses leaner and more adaptable. However, Skanda Amarnath, Executive Director of the economic policy think tank Employ America, offered a more cautious description, characterizing the current job market as "robustly soggy" — "sluggish for a long time, but not yet collapsed."
Guy Berger frankly stated: "The years 2022, 2023, 2024, and 2025 have made me realize anew that a very slow but continuous deterioration is not impossible."
The Federal Reserve is caught in a dilemma.
The resilience of the job market has not made the Federal Reserve's situation any easier.
Before the outbreak of the war, several Federal Reserve officials still expected interest rate cuts to resume this year. Now, more officials have indicated that interest rates may remain unchanged indefinitely.
Mary Daly, President of the Federal Reserve Bank of San Francisco, wrote in a blog post on April 4: "Communicating to the public that zero job growth is consistent with full employment is not easy." She also warned that the ceiling for economic growth has shifted lower, increasing the risk of misjudgment from interest rates being either too high or too low.
The core contradiction facing the Federal Reserve is that it has spent five years explaining to the public that "high inflation is temporary," and every new supply shock makes this narrative increasingly difficult to sustain. If high interest rates are maintained to suppress inflation, the job market may come under pressure; if interest rates are cut to protect employment, inflation expectations could spiral out of control.
Daleep Singh, Chief Global Economist at PGIM, outlined two scenarios: if both parties reach a decent ceasefire, oil prices could fall back to between $80 and $100 per barrel; if the conflict escalates, supply chain disruptions will weigh on growth far beyond the duration of the conflict itself, making it even harder for the Federal Reserve to cushion economic downturns through rate cuts.
The outcome largely depends on how long the war lasts.
Editor/Lambor