The Middle East remains engulfed in war—how much longer can U.S. non-farm payrolls hold up?

A striking employment report hides a more unsettling problem. The U.S. Department of Labor released the March non-farm employment data on April 4, which superficially reassured the markets—but the shadow of war and structural decline in employment are making this comfort increasingly fragile. March saw 178,000 new jobs added, the highest increase in nearly 15 months, reversing February's revised decrease of 133,000 jobs. The unemployment rate fell from February’s peak to 4.3%. With the release of these figures, the market briefly breathed a sigh of relief. However, the drop in unemployment rate did not stem from a surge in job opportunities. In reality, nearly 400,000 Americans exited the labor force last month. When jobs become harder to find, people simply choose to give up. Labor economist Guy Berger threw cold water on the optimism: "No one is talking about the job market re-accelerating anymore." Average numbers reveal the real temperature Large fluctuations in single-month data mask the true rhythm of the job market. Combining February and March, the average monthly new jobs are only about 22,500—this is a more realistic benchmark. A deeper crisis is that in March, the U.S. labor force participation rate fell to 61.9%, the lowest in nearly five years. If pandemic interference is excluded, this figure even marks the lowest since 1976 (when women began to enter the workforce en masse). Gus Faucher, chief economist at PNC Financial Services, pointed out that aging and recent restrictions on immigration are causing a continued contraction in labor supply. Another detail worth noting: the year-over-year wage growth for ordinary workers (non-management) has dropped to 3.5%, the lowest level since the post-pandemic reopening five years ago. Slowing wage growth means consumers’ purchasing power is weakening. "Low hiring, low layoffs"—an unhealthy balance The current U.S. labor market exhibits an extreme contradiction: hiring motivation is lacking, but companies are also unwilling to lay off employees. Data shows that over the past year, the healthcare industry has been almost the only engine of hiring. Outside of healthcare, other sectors have been shedding jobs. In the past 12 months, the U.S. economy added only 327,000 jobs, far below the normal annual level of 1-2 million jobs. "Hiring is at a low, but so are layoffs." Bill Adams, chief economist at Fifth Third Bank, explained. The four-week average initial jobless claims fell to 207,000, a historic low. This "not hiring nor firing" state is called the "low hiring-low layoff" model by economists, maintaining a delicate and fragile balance. Hormuz shock: This time is different In recent years, the U.S. job market has weathered aggressive rate hikes, regional banking crises, and tariff shocks, each time "bent but not broken." But according to The Wall Street Journal, the closure of the Strait of Hormuz caused by the Iran war brings a different impact to the global energy supply chain. St. Louis Federal Reserve economists estimate that if oil prices stay at their current level, the additional quarterly consumer spending on fuel will offset anywhere from 10% to 50% of the effect of Trump’s tax cuts last year. The logic is straightforward: every dollar going into the gas tank is one less dollar spent at restaurants, retailers, and the service industry—which form the core of U.S. employment. Meanwhile, rising bond yields have pushed the 30-year mortgage rate from 6% back up to about 6.5%. The once hopeful real estate recovery and boost in construction jobs now look bleak. Consumer buffers are nearly exhausted Consumers managed to withstand the energy shock caused by the Russia-Ukraine conflict in 2022 thanks to surplus savings accumulated during the pandemic. This time, things are different. Nathan Sheets, Citi Group’s chief economist, notes that consumer savings buffers are basically depleted. Combined with slowing wage growth, families’ ability to absorb price hikes has dropped sharply. He said, “What could break them is a significant deterioration in the job market.” Sheets compares the current job market to an "athlete in peak training condition"—years of shocks have made companies leaner and more adaptable. But Skanda Amarnath, executive director of economic policy think tank Employ America, offers a more cautious description, calling the current job market "robustly soggy"—"sluggish for a long time, but not yet collapsed." Guy Berger points out: "2022, 2023, 2024, 2025 have made me realize that it’s entirely possible for things to deteriorate very slowly." The Fed’s dilemma The resilience of the job market hasn’t made the Federal Reserve’s situation any easier. Before the outbreak of war, several Fed officials still expected a resumption of rate cuts this year. Now, more officials have stated rates may remain unchanged indefinitely. San Francisco Fed President Mary Daly wrote in her April 4 blog post: "It’s not easy to communicate to the public that zero job growth is consistent with full employment." She also warned that the upper limit of economic growth has shifted downward, and the risk of misjudging rates as too high or too low is rising. The Fed's core dilemma is: it has spent five years explaining to the public that "high inflation is temporary," but each new supply shock makes this narrative harder to maintain. Maintaining high rates to curb inflation may pressure the job market; cutting rates to support employment may send inflation expectations out of control. Daleep Singh, chief global economist at PGIM, gave two scenarios: if both sides reach a decent ceasefire, oil prices may fall back to $80–$100 per barrel; if the conflict escalates, supply chain disruptions will drag down growth far beyond the duration of the conflict itself, and it will be harder for the Fed to cushion economic downturns via rate cuts. How things end depends to a large extent on the duration of the war. Risk Warning and Disclaimer Markets are risky and investment needs caution. This article does not constitute personal investment advice, nor does it take into account individual users’ unique investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein fit their particular circumstances. Investment based on this is at your own risk.