Preview of the US March Non-Farm Employment Report: Mild Recovery in Employment Behind Double "Shockwaves" Brewing from Middle East Conflict and AI Layoffs.

The US Department of Labor Statistics will release the March non-farm employment report at 20:30 on Friday Beijing time, while the US stock market will be closed for Good Friday. After experiencing drastic fluctuations in employment data in the first two months of the year, the market generally expects moderate recovery in the US job market in March. However, this report can only partially reflect the true state of the job market, as the ongoing conflicts in the Middle East with GEO Group Inc, the escalating substitution effects of artificial intelligence (AI) on employment, and the structural changes in the US labor market itself are bringing significant downward risks to future employment prospects. Drastic fluctuations in opening year data, employment expected to return to normal in March According to FactSet's consensus expectations, the US non-farm employment population is expected to increase by only 60,000 in March, with the unemployment rate remaining at 4.4%. If this growth rate is realized, it will be far below the standards of the past few years, but in view of the current special environment in the labor market, this may actually represent a "normalization". Looking back, in January, there was an addition of 126,000 jobs (better than expected), but in February there was an unexpected loss of 92,000 jobs. The significant fluctuations in employment data since the beginning of the year do not fully reflect the trend change in the job market, and multiple special factors are the core drivers. One, extreme weather and holiday hiring rhythms out of sync, causing significant disturbances in early year employment statistics; two, labor strikes bringing two-way effects - with over 30,000 striking workers off the job in February directly pulling down the employment data for the month, while 32,000 workers from Starbucks Corporation (SBUX.US) and Kaiser Medical who were on strike returning to work in March will provide a positive boost to the employment data for the month; three, the US Department of Labor Statistics' adjustment of the employment statistics methodology for new and closed businesses, although likely to reduce the annual data correction amount, has also increased the volatility of monthly data. EY-Parthenon's senior economist Lydia Boussour stated that excluding short-term boosts related to strikes, the addition of 60,000 jobs means that the US job market is gradually returning to normal. She expects that the employment situation in the construction, transportation, and some retail industries, which were affected by weather, will somewhat improve. Healthcare industry becomes core focus Employment market evaluation criteria completely rewritten In this upcoming report, the performance of the healthcare industry will become the core focus of the market. As the core engine of US job growth in recent years, the healthcare industry unexpectedly lost 28,000 jobs in February, directly dragging down the overall employment performance for the month. From leading indicators, the healthcare industry is still the only core support for the current US job market. ADP's March private employment report released on Wednesday showed an addition of 62,000 jobs in the private sector in the month, slightly above market expectations, with 58,000 of the new jobs coming from the healthcare industry. But ADP's chief economist Nela Richardson pointed out that there are hidden concerns behind this growth - the new positions are mostly low-paying home care workers rather than full-time positions with full benefits, making their ability to support consumer spending very limited. Data shows that over the past year, if the healthcare industry is excluded, the US job market would have recorded a net loss of over 500,000 people. At the same time, the US labor market is undergoing a profound structural transformation, and the market's evaluation criteria for "healthy employment data" have been completely rewritten. Homebase's chief economist Guy Berger said that the market needs to redefine what constitutes good or bad employment data. Employment loss data that would have triggered recession fears in the past will no longer cause excessive market volatility. The latest research by the St. Louis Fed shows that the monthly balance point for new job additions that maintains the stable unemployment rate in the US has dropped to a minimum of 15,000 people, with an upper limit of only 87,000 people, significantly lower than the estimated value of 153,000 people in April 2025. The estimate for the profit and loss range given by the institution for August 2025 still ranges from 32,000 to 82,000 people. This means that the US job market no longer needs high levels of new additions to maintain full employment levels. Due to immigration restrictions, changes in population structure, and uncertainties from GEO Group Inc., US companies have been maintaining a state of "low hiring, low layoffs" for over a year, causing the overall job market to stagnate. Earlier Department of Labor data showed that the US job vacancy rate had fallen to 3.1%, reaching the lowest level since the 2020 COVID-19 downturn, with the last lower value dating back to January 2011. The latest unemployment insurance data shows that last week, initial claims for unemployment insurance in the US fell to 202,000 people, nearing the low point since 2026; the scale of layoff announcements by US companies in the first quarter of 2026 also hit the lowest level since 2022, although layoff announcements in March have shown some increase, there have not been signs of large-scale layoffs. However, concerns about a recession are continuing to rise. Institutions such as Goldman Sachs Group, Inc., Moody's Corporation, and others have recently raised the probability of a US economic recession over the next 12 months, with EY-Parthenon increasing the probability of a recession to 40%, forecasting that the US job market will be in a frozen state overall in 2026, with recruitment becoming more selective, wage growth remaining under pressure, and companies advancing strategic personnel adjustments. AI layoff effects emerging Middle East conflicts pose the biggest uncertainty It is worth noting that AI is becoming a new downward pressure on the US job market. The latest report from global outplacement agency Challenger, Gray & Christmas shows that in March, US companies announced plans to lay off a total of 60,620 people, with 15,341 of these layoffs directly attributed to AI. "Companies are investing in AI at the cost of sacrificing jobs," said Andy Challenger, the company's Chief Revenue Officer, pointing out that the technology industry is already seeing AI replacing coding jobs, while other industries are testing the boundaries of this new technology's application, causing actual job losses. More importantly, the escalating conflict of GEO Group Inc in the Middle East could resonate with the effects of AI substitution, further striking the US job market. The conflict sparked by the US and Israel's strikes against Iran on February 28th is entering its sixth week, and the supply disruptions caused by the blockage of the Hormuz Strait have caused shockwaves in the global market, with significant increases in domestic gasoline prices and corporate transportation costs, leading to concerns that the impact of the conflict will quickly spread to the entire economic system. Economists generally expect that since the employment survey for the non-farm report is conducted in the mid-month, it can only capture the initial impact of the conflict, and the uncertainty from GEO Group Inc will likely cause companies to pause recruitment plans rather than directly implement large-scale layoffs, so this conflict will not have a significant impact on March employment data. However, if the conflict's duration and scale further expand, its lagged impact on the job market will quickly become apparent. Audrey Guo, Assistant Professor of Economics at the Leavey School of Business at Santa Clara University, stated that if the conflict continues and energy prices stay high, companies will accelerate the application of AI to reduce labor costs to cut costs, and the substitution effects of AI on jobs will be further amplified. Joe Brusuelas, Chief Economist at RSM US, bluntly stated that rising energy prices will affect all households and industries, with no industry being spared. The surge in oil prices and shortages of key commodities like fertilizer will rapidly drive up prices for all categories of goods and services, squeezing residents' disposable income, thereby leading to "demand destruction". Dean Baker, Co-founder of the Center for Economic and Policy Research, pointed out that discretionary consumption is expected to be hit first, and the food service industry is the only major source of US job growth apart from healthcare and social assistance. If high-income families reduce spending on dining out due to a stock market decline, it will create significant pressure on the overall job market. Brusuelas further stated that if diesel prices remain above $5 per gallon, industries such as transportation, manufacturing, and agriculture will be forced to cut back on investment and employment. "Under the impact, we have raised our unemployment rate expectation for the year from 4.3% to 4.7%," Brusuelas said, "but we expect to see this change by mid or end of the year."