Quick overview

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The U.S. economy added 178,000 nonfarm jobs in March, well above the 60,000 expected by economists, although risks to the labor market remain amid the ongoing war in the Middle East.

According to the closely watched report released Friday by the U.S. Bureau of Labor Statistics, the world’s largest economy rebounded after losing 133,000 jobs in February.

The report also showed the unemployment rate edging down from 4.4% to 4.3%.

Despite the stronger-than-expected data, the figures are unlikely to significantly alter the outlook for interest rates, as the economic effects of supply disruptions linked to the conflict have yet to fully materialize. The Federal Reserve last month kept its benchmark rate within the 3.50%–3.75% range, and expectations for rate cuts this year have declined.

Economists expect labor market weakness in the second quarter

In late February, the United States and Israel launched attacks against Iran, triggering a surge of more than 50% in global oil prices and pushing domestic gasoline prices higher.

Economists say the war—now in its second month—adds another layer of uncertainty for businesses and could begin to weigh on the labor market in the second quarter.

Mass deportations carried out by the administration of Donald Trump have also contributed to labor market stagnation by reducing labor supply, which in turn affects demand for goods and services, according to some economists.

Because labor supply growth has been historically low, estimates suggest the economy now needs fewer than 50,000 jobs per month to keep pace with the growth of the working-age population. Some forecasts even place the equilibrium rate near zero or negative.

Economists at JPMorgan Chase warned that negative monthly employment readings may become more frequent, noting that March was likely too early to capture the full economic impact of the Middle East conflict. They said clearer effects could emerge as early as the April jobs report.

Meanwhile, the average retail gasoline price in the United States has climbed above $4 per gallon for the first time in more than three years, adding inflationary pressure and eroding household purchasing power despite solid wage growth.

At the same time, the war erased roughly $3.2 trillion from global equity markets in March, underscoring the broader financial impact of the conflict.