The US job market has not yet shown the impact of the war: Nonfarm payrolls in March greatly exceeded expectations, unemployment rate decreased, and the expectation of the Federal Reserve not cutting interest rates strengthened.

In March, the rebound in employment growth and unexpected drop in the unemployment rate in the United States indicate that the labor market is stabilizing amidst the outbreak of the Iran war. The seasonally adjusted non-farm employment in the U.S. increased by 178,000 in March, the highest increase since the end of 2024, surpassing expectations of 60,000, with the previous value revised from -92,000 to -133,000. The unemployment rate in the U.S. in March was 4.3%, slightly lower than the expected 4.40% and previous value of 4.40%. The changes in the total non-farm employment in January were upwardly revised by 34,000, from +126,000 to +160,000; while the changes in February were downwardly revised by 41,000, from -92,000 to -133,000. After revision, the total employment in January and February was 7,000 less than the previously published data. Analysts predict that employment numbers will accelerate growth by June, reflecting an increase in hiring in the leisure and hospitality industry due to the U.S. hosting the World Cup, as well as a cyclical rebound in the freight industry. The significant supply shocks caused by the Iran war may not be reflected in employment data until the second half of the year, with the unemployment rate expected to rise more quickly by that time. Although the unemployment rate has decreased somewhat, this partly reflects some Americans exiting the labor market - the labor force decreased by 396,000 in March, with the U.S. labor force participation rate at 61.9%, the lowest level since 2021, slightly below the expected 62.1% and previous value of 62.00%. The labor force participation rate of workers aged 25 to 54 (also known as prime age workers) also declined. The number of people working part-time for economic reasons has increased. Economists estimate that due to historically low labor supply growth, the monthly addition of new jobs is less than 50,000, barely keeping up with the growth of the working-age population. Some estimates even suggest that the breakeven point is zero or negative. JPMorgan economists warned that "negative growth in any month will become more common," and added, "even though job growth is sufficient to stabilize the unemployment rate, employment data may still be negative in at least one-third of the time." Economists widely expected a rebound in the job market in March after a sharp decline in employment numbers in February. Previously, a strike by over 30,000 healthcare workers and severe winter weather led to a sharp decline in employment in February. This strong growth might further strengthen the Fed's focus on inflation risks, as the Middle East war has sparked a rapid rise in energy prices. The growth in non-farm employment in March was mainly driven by the healthcare industry, as a recovery was seen after the end of the strike by employees at Kaiser Permanente in California and Hawaii. The construction industry, as well as the leisure and hospitality industry, also saw a recovery after a decline in February, possibly reflecting a rebound due to weather factors. The non-farm employment in manufacturing reached its highest level since the end of 2023. Economists are also closely monitoring how the dynamics of labor supply and demand affect wage growth, particularly in the case of renewed inflation risks. The report shows that average hourly wages increased by 0.2% month-on-month and 3.5% year-on-year, the lowest level in nearly five years and below expectations. Other data shows that before the outbreak of the Iran war, the labor market did not show signs of growth. Job vacancies decreased in February, and the pace of hiring slowed to its lowest level since 2020. The recruitment plan index for small businesses in March remained stable, at one of the lowest levels in recent years. Although March may not yet fully reflect the impact of the Middle East conflict, some economists suggest that the April employment report may show this influence. This week, the average retail gasoline price in the U.S. surpassed $4 per gallon for the first time in over three years. This will increase inflation, weaken household purchasing power, offset some of the strong momentum in wage growth, and suppress consumer spending. The war led to a loss of about $3.2 trillion in stock market value in March. Trump vowed on Wednesday to launch more aggressive attacks on Iran. The March employment report may not affect interest rate prospects, as the impact of supply chain disruptions caused by the conflict has not fully manifested in the economy yet. The likelihood of rate cuts this year has been greatly reduced. U.S. Treasury yields rose after the strong non-farm payroll data was released, strengthening market expectations that the Fed will maintain rates rather than cut them for a longer period. The yield on the 10-year U.S. Treasury rose by 4.7 basis points to 4.36% after the employment data was released, while the 2-year yield reflecting rate expectations rose by 6.6 basis points to 3.862%. Futures markets indicate that there is almost no chance of any action being taken at the FOMC meeting on April 28-29, with CME FedWatch data showing over a 90% probability that the Fed will hold rates steady until the end of the year.