What to expect from the March jobs report — and when the war could hit hiring

By Alicia Wallace, CNN

(CNN) — The March jobs report, due out Friday morning, could bring a much-needed reality check after two months of wild swings in the US labor market.

But even if a level or baseline is achieved, and clarity is gained as to the health of the labor market, it’s a whole new ballgame now.

The Middle East 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.

The sprawling conflict, which started when the US and Israel launched strikes against Iran on February 28, is not expected to have a major effect on the March employment numbers.

The surveys that underpin the report are conducted mid-month, so they’ll likely capture the first part of the war. Additionally, economists weren’t anticipating much immediate negative impact, noting that uncertainty could result in paused hiring plans versus outright job cuts.

That could change, however, given the duration and scope of the war.

A ‘normalization’

The US economy likely added 60,000 jobs last month and the unemployment rate held at 4.4%, according to FactSet consensus estimates.

That would mark an improvement from the surprising 92,000 loss reported in February but land half the size of January’s stronger-than-expected 126,000 estimated payroll gains.

There are some methods to the volatility madness:

• First, it’s possible that weather (good and bad) played a factor, as did tepid holiday hiring (fewer layoffs in January)
• Second, February’s tally was driven lower by 30,000-plus striking workers
• Third, those strike effects will echo through the March employment numbers, as 32,000 workers previously on strike at Starbucks and Kaiser Permanente returned to their jobs
• Fourth, while a recalibration in how the Bureau of Labor Statistics measures payroll changes at brand new and closed businesses could ultimately make annual revisions less outsized, economists say these methodological modifications could introduce greater month-to-month volatility.

Considering the above (and factoring in that strike-related boost), a 60,000 job gain in March would reflect some normalization, Lydia Boussour, EY-Parthenon senior economist, wrote in a note to investors on Tuesday.

She expects weather-impacted sectors like construction, transportation and parts of retail to show some employment picking back up.

But the industry to key in on for the month will be health care, which shed 28,000 jobs in February after consistently driving employment gains, she said.

“We will be watching closely to see whether March delivers a clean rebound from the strike, which temporarily shaved 31,000 striking workers off payrolls, or whether the industry’s ability to carry total employment growth forward is beginning to fade,” she wrote.

AI playing bigger role in job cut plans

The US labor market has been in a low-hire, low-fire state for more than a year, and that dynamic isn’t expected to have changed too dramatically in March.

Jobless claims, a closely watched indicator of layoff activity, haven’t picked up dramatically in recent weeks, Labor Department data shows. Last week, first-time claims for unemployment benefits fell to an estimated 202,000, landing near a 2026 low, according to new Department of Labor data released Thursday.

Plus, the first quarter of 2026 has seen the fewest layoff announcements since 2022, new data from Challenger, Gray & Christmas showed.

However, Challenger’s latest job cuts report released Thursday not only showed that announced layoffs increased in March, but also highlighted the growing role that artificial intelligence is playing in employment decisions.

Of the 60,620 planned cuts announced in March, AI was cited as the reason for 15,341 of them.

“Companies are shifting budgets toward AI investments at the expense of jobs,” said Andy Challenger, chief revenue officer at the outplacement services firm. “The actual replacing of roles can be seen in technology companies, where AI can replace coding functions. Other industries are testing the limits of this new technology.”

“And while it can’t replace jobs completely, it is costing jobs,” he added.

How the war could rattle the labor market

To that end, AI could play an even greater role in workforce decisions if the war continues to drag on and energy prices remain high, said Audrey Guo, assistant professor of economics at Santa Clara University’s Leavey School of Business.

“It’s true that during downturns or recessions, some companies are most likely to reinvent or try new things, because there’s not much to lose,” she said in an interview with CNN. “If they’re facing high prices and the need to cut costs, one way they could try to cut labor costs is through the adoption of AI.”

And no industry will be immune from sharply rising costs, Joe Brusuelas, chief economist at RSM US, told CNN.

“Energy touches every single household,” he said. “There’s not one industry or sector that’s going to be safe.”

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.

Brusuelas early this week detailed a roadmap of potential “demand destruction,” a term for what happens when high prices force businesses and consumers to spend less.

Discretionary spending is usually the first to go, and restaurant employment could be hit first, noted Dean Baker, senior economist and co-founder of the Center for Economic and Policy Research.

Restaurant spending has grown modestly, driven in part by higher-income households whose wealth has been boosted by the strong financial markets, Baker wrote in a note this week.

“With the market falling sharply following the start of the war, higher income households may also be curtailing spending,” he wrote. “With restaurants being the only major source of job growth outside of health care and social assistance, this is not a good omen for the overall labor market.”

As confidence craters further, consumers then cut beyond the discretionary and start holding off on big-ticket purchases, Brusuelas said. And when diesel consistently tops $5 a gallon and raises the cost of shipping, businesses – especially in transportation, manufacturing and agriculture – cut back on investments and their workforces, he added.

“We’ve already upgraded our estimate of unemployment to 4.7% this year from 4.3% on the back of the shock,” he said. “But we won’t expect to see it until mid-to-late-year.”

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