U.S. March Non-Farm Payrolls Preview: Behind the Moderate Job Recovery, Middle East Conflict + AI Layoffs Are Brewing a Double "Shockwave"

Zhitong Finance APP learned that the U.S. Bureau of Labor Statistics will release the March nonfarm payroll employment report at 20:30 Beijing time this Friday. On the same day, U.S. stock markets will be closed due to the Good Friday holiday. After the dramatic fluctuations in employment data over the first two months of the year, the market generally expects that the U.S. labor market in March will see a moderate rebound.

However, this report can only partially reflect the true underlying reality of the labor market. Escalating geopolitical conflicts in the Middle East, the intensifying job-replacement effects of artificial intelligence (AI), and the structural shift within the U.S. labor market itself are creating significant downside risks to subsequent employment prospects.

Sharp Swings in Early-Year Data—March Employment May Return to Normal

According to FactSet’s consensus expectations, the number of U.S. nonfarm employment in March is expected to increase by only 60,000, while the unemployment rate will remain at 4.4%. If this growth rate proves to be true, it would be far below the standard of the past few years; but given the special conditions of the current labor market, it may in fact represent a kind of “normalization.”

Looking back, employment gains were 126,000 in January (stronger than expected), but February unexpectedly recorded a job loss of 92,000. The large fluctuations in employment data since the start of the year do not fully reflect a trend change in the labor market. Multiple special factors are the core driving forces. First, the misalignment between extreme weather and holiday hiring schedules created clear disruption to early-year employment statistics. Second, strike events have a two-way impact—more than 30,000 striking workers in February left their jobs, directly dragging down that month’s employment figures, while the 32,000 workers at Starbucks (SBUX.US) and Kaiser Health who previously went on strike have returned to work in March, which will provide a positive boost to that month’s employment data. Third, the U.S. Bureau of Labor Statistics has calibrated its employment statistics methodology for newly established and closed companies; although this may reduce the magnitude of annual data revisions, it also increases month-to-month volatility.

EY-Parthenon senior economist Lydia Boussour said that after removing the short-term boost related to strikes, a net addition of 60,000 jobs implies that the U.S. labor market is gradually returning to normal. She expects that employment conditions in the construction, transportation, and some retail sectors that were previously affected by the weather will improve.

Healthcare Becomes the Key Focus—Employment Market Evaluation Criteria Have Been Completely Rewritten

In this upcoming report, the performance of the healthcare industry will become the market’s core focus. As the key engine of U.S. employment growth over the past several years, the healthcare industry unexpectedly reduced employment by 28,000 jobs in February, directly dragging down overall employment performance for the month.

From leading indicators, the healthcare industry remains the only core support for the current U.S. employment market. The March private employment report released by ADP on Wednesday showed that private sector employment increased by 62,000 that month, slightly above market expectations, and of the 58,000 new jobs, all came from the healthcare industry. However, ADP chief economist Nela Richardson pointed out that there are hidden concerns behind this growth: many of the new positions are low-paid home health aide roles, rather than full-time jobs with comprehensive benefits, so their ability to support residents’ consumption is very limited. Data show that over the past year, if healthcare is excluded, the U.S. labor market would record a net loss of more than 500,000 people.

Meanwhile, the U.S. labor market is undergoing profound structural changes, and the market’s evaluation standards for “healthy employment data” have been completely rewritten. Guy Berger, chief economist at Homebase, said the market needs to redefine what constitutes good or bad employment data. Previously, employment outflows data that could trigger recession fears would cause excessive market turbulence; now, such data no longer brings excessive swings to the market.

The latest research from the Federal Reserve Bank of St. Louis shows that the monthly employment surplus/deficit break-even point needed to keep the U.S. unemployment rate stable has fallen to as low as 15,000, with an upper bound of only 87,000, down sharply from the estimate of 153,000 jobs on April 15, 2025. The still-expected break-even range provided by the institution in August 2025 remains 32,000–82,000. This means the U.S. labor market no longer requires the high level of job gains seen in the past to maintain full employment.

Affected by immigration restrictions, changes in population structure, and geopolitical uncertainty, U.S. companies have maintained a “low hiring, low layoffs” mode for more than a year, leaving the labor market overall stuck. Earlier, the Department of Labor showed the hiring rate in the U.S. labor market fell to 3.1%, the lowest level since the COVID-19 recession in 2020. The last time a lower figure appeared was in January 2011. The latest unemployment benefits data showed that initial jobless claims in the U.S. fell to 202,000 last week, close to a low point since 2026. In the first quarter of 2026, the scale of U.S. company layoff announcements also hit the lowest level since 2022. Although layoff announcements in March rose somewhat, there has not yet been evidence of large-scale layoffs.

However, market concerns about a recession are continuing to heat up. Institutions such as Goldman Sachs and Moody’s Analytics have recently raised the probability of a U.S. economic recession over the next 12 months, and EY-Parthenon has even raised the recession probability to 40%. It expects that in 2026 the U.S. employment market will be broadly frozen, hiring will become more selective, wage growth will remain under pressure, and companies will advance strategic personnel adjustments.

AI Layoff Effects Begin to Show—Middle East Conflict Is the Biggest Uncertainty

What is worth watching is that AI is becoming a new source of downward pressure in the U.S. labor market. The latest report from global outplacement and reemployment services firm Challenger, Gray & Christmas shows that in March, companies in the U.S. announced planned layoffs totaling 60,620 people, of which 15,341 layoffs were directly attributable to AI.

“Companies are tilting budgets toward AI investment at the expense of employment,” Andy Challenger, the firm’s chief revenue officer, said. The technology sector has already seen instances of AI replacing coding jobs, and other industries are also testing the boundaries of applications for this new technology. Although AI cannot completely replace jobs, it is already causing real job losses.

Even more concerning for the market is the continued escalation of Middle East geopolitical conflict, which may resonate with the AI replacement effect and further hit the U.S. employment market. The conflict triggered by U.S. strikes on Iran by the U.S. and Israel on February 28 is entering its sixth week; supply tightness caused by disruption to shipping in the Strait of Hormuz has already sent shockwaves across global markets. In the U.S., domestic gasoline prices and enterprise transportation costs have risen significantly, and the market worries that the effects of the conflict will quickly spread to the entire economic system.

Economists generally expect that because the employment survey for the nonfarm report is conducted in the middle of the month, it can only capture the impact at the initial stage of the conflict. In addition, more geopolitical uncertainty will lead companies to pause hiring plans rather than carry out large-scale layoffs directly. Therefore, this conflict is unlikely to cause a major shock to March employment data. But if the conflict’s duration and scale further expand, its lagged impact on the employment market will quickly become apparent.

Audrey Guo, assistant professor of economics at the Leavey School of Business at Santa Clara University, said that if the conflict continues and energy prices stay high, companies will accelerate the adoption of AI to reduce labor costs in order to cut costs, which will further amplify AI’s job replacement effects.

RSM US chief economist Joe Brusuelas said bluntly that rising energy prices will affect every household and every industry, and no industry can avoid it. A surge in oil prices and shortages of key commodities such as fertilizer will quickly push up prices across all categories of goods and services, squeeze discretionary income, and then trigger “demand destruction.”

Dean Baker, co-founder of the Center for Economic and Policy Research, said that discretionary consumption is expected to be hit first. The restaurant industry is the only major source of U.S. employment growth besides healthcare and social assistance. If high-income households reduce spending on dining due to declines in the stock market, it will bring significant pressure to the overall employment market. Brusuelas further said that if diesel prices remain above $5 per gallon, industries such as transportation, manufacturing, and agriculture will be forced to cut investment and hiring scale.

“Under the impact of the shocks, we have already raised our unemployment rate forecast for this year from 4.3% to 4.7%,” Brusuelas said. “But we expect to see this change only by mid-year or by the end of the year.”