What a surprisingly strong March jobs report means in the face of war

(CNN) — The latest jobs report showed that the US economy likely added 178,000 jobs in March, nearly triple expectations.

The unemployment rate dipped to 4.3%. Forecasts had it holding steady at 4.4% or even rising to 4.5%.

Health care and social assistance was once again the workhorse sector, accounting for half of the month’s gains; however, job growth was the most widespread across industries since December 2023.

At first glance, Friday’s report from the Bureau of Labor Statistics showed that the labor market wasn’t on life support as previously feared, but rather was on solid footing at a much-needed time – when war-driven economic shocks and uncertainty loom large.

But take a step back and the labor market picture becomes a little fuzzier:

A hefty chunk of those big gains could be attributable to nicer weather, the end of major labor strikes, and some recalibrations as to how the BLS estimates payroll changes at new and closed businesses. (Goldman Sachs economists estimated that those three factors alone likely accounted for 122,000 of March’s gains.)

Adding to the volatility were low response rates to the surveys underlying March’s report.

Plus, labor participation inched down and wage growth slowed, dynamics that could make it even harder for Americans to keep up with rising costs.

March’s stronger-than-expected job gains – the biggest since December 2024 – could merely be just another crest in a roller-coaster-like corkscrew of jobs reports. The 178,000 tally follows a downwardly revised 133,000-job loss in February and an upwardly revised 160,000-job gain in January.

“We continue to get whipsawed by the data,” Stephanie Roth, chief economist at Wolfe Research, told CNN in an interview. “If you took it at face value, you would say the economy was booming in March and falling apart in February – neither of which was true.”

Still, Roth contended that while the Middle East war did not play a significant role in the March jobs data, Friday’s report did show that the US labor market didn’t enter the conflict in a terrible place.

Which industries hired

March’s job gains were led by health care and social assistance, adding about 89,900 jobs (31,000 of which were formerly striking Kaiser Permanente employees who returned to their positions).

Manufacturing posted its biggest gain in more than two years, adding 15,000 jobs. Construction, likely lifted by favorable weather, swung to a net gain of 26,000 jobs versus a 13,000-job loss in February.

The “diffusion index,” which provides a measurement of job growth across major labor market industries, jumped to 56.8 in March from 49.2 (a number over 50 indicates more industries are adding jobs than losing them).

It’s the highest reading for the index since December 2023.

“While there are always some caveats with the jobs numbers, we didn’t see enough warts on this report to negate the overall rather favorable message,” Michael Feroli, chief economist at JPMorgan, wrote in a note to investors Friday. “This gives us a little more confidence that economic growth can weather the ongoing energy price shock without too much enduring damage.”

The latest report should also “make it an easy call” for the Federal Reserve to stay on pause at its meeting later this month, Feroli added.

Slow growth, low-hire, low-fire

Smoothing out the fluctuations, the three-month average for job growth is running just above 68,000 this year. That’s an improvement from the 12,000-jobs-a-month slog in 2025 but still below the historical average of 120,000 jobs per month, BLS data shows.

However, the economy adding 68,000 jobs per month isn’t too shabby by some estimates. That’s because factors such as demographic changes (aging Baby Boomers, fewer births, and a sharp decline in migration due in large part to the Trump administration’s immigration policies) and technological innovation have coalesced, leading to a belief that the economy doesn’t need to add as many jobs as it once did to keep unemployment from rising.

Economists’ estimates for the “breakeven rate” span quite a large range –from negative or near-zero growth to north of 135,000 monthly gains.

“We expect that through the rest of the year we’re going to be averaging probably around 30,000 to 40,000 jobs a month, and that’s largely a reflection of the lower labor supply growth environment,” Adam Schickling, Vanguard’s senior economist, said in an interview.

At the same time, other elements such as high uncertainty – stemming from federal policy shifts to war to artificial intelligence – are weighing heavily on businesses’ hiring plans.

Looming uncertainty

Friday’s jobs report is one of the first major economic data releases since the start of the US-Israeli war with Iran.

The escalating conflict in the Middle East wasn’t expected to affect March’s employment numbers; however, economists caution that the health of the US labor market and broader economy hinge on the scope and duration of the war.

The conflict, which looks set to stretch into its sixth week, and the resulting supply crunch from a choked-off Strait of Hormuz, are delivering shockwaves throughout the globe.

Americans immediately saw an increase in prices at the pump; businesses watched transportation costs skip higher; and fears have heightened that the war’s fallout could quickly metastasize throughout the economy.

Sharply rising oil prices and sudden shortages of critical materials such as fertilizer can quickly permeate an economy and cause all kinds of goods and services to increase in price while sapping precious household income.

For now, some of those near-term increases have been blunted some by Americans’ tax refunds; however, that’s not an endless well.

Plus, wage growth continues to cool – the annual rate of pay gains slowed sharply to 3.5% from 3.8%. At the same time, inflation is expected to pick up as a result of the war with Iran: Economists are forecasting that the Consumer Price Index could jump above 3% for the first time in nearly two years.

“We do think that the labor market has become more vulnerable because of the war, but that’s going to take some time to show up,” Nancy Vanden Houten, senior economist at Oxford Economics, said in an interview. “The impact on oil prices and what consumers are feeling at the pump are very immediate, but we think that the impact on the broader economy and the labor market is going to take more time.”

The-CNN-Wire
™ & © 2026 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

CNN’s Matt Egan contributed reporting.