U.S. March Non-Farm Payroll Report Preview: Behind the Moderate Recovery in Employment, Dual "Shockwaves" of Middle East Conflict + AI Layoffs Are Brewing

According to the Zhitong Finance APP, the U.S. Bureau of Labor Statistics will release the March non-farm payroll report at 20:30 Beijing time on Friday, with U.S. stock markets closed for the Good Friday holiday. After experiencing significant fluctuations in employment data in the first two months of the year, the market generally expects a moderate recovery in the U.S. job market in March.

However, this report can only partially reflect the true state of the job market. The ongoing escalation of geopolitical conflicts in the Middle East, the increasing substitution effect of artificial intelligence (AI) on employment, and the structural changes within the U.S. labor market are all bringing significant downward risks to future employment prospects.

Severe fluctuations in early-year data, March employment expected to return to normalization

According to FactSet's consensus expectations, the U.S. non-farm payrolls are expected to increase by only 60,000 in March, with the unemployment rate remaining at 4.4%. If this growth rate materializes, it will be far below the standards of the past few years, but considering the current special environment of the labor market, it may represent a form of "normalization."

Looking back, January saw an increase of 126,000 jobs (better than expected), while February unexpectedly recorded a loss of 92,000 jobs. The significant fluctuations in employment data since the beginning of the year do not fully reflect a trend change in the job market; multiple special factors are the core drivers. First, extreme weather and the misalignment of holiday hiring rhythms have caused significant disturbances in early-year employment statistics; second, strike events have had a dual impact—over 30,000 striking workers left their jobs in February, directly lowering that month's employment data, while in March, the return of 32,000 workers from previous strikes at Starbucks (SBUX.US) and Kaiser Permanente will provide a positive boost to that month's employment data; third, the U.S. Bureau of Labor Statistics' calibration of employment statistics for newly established and closed businesses, while expected to reduce the annual data revision magnitude, has also increased the volatility of monthly data.

Lydia Boussour, a senior economist at EY-Parthenon, stated that after excluding the short-term boost related to strikes, the addition of 60,000 jobs indicates that the U.S. job market is gradually returning to normalization. She expects that employment conditions in construction, transportation, and some retail sectors, previously affected by weather, will see some improvement.

Healthcare sector becomes a core focus, employment market evaluation criteria have been completely rewritten

In this upcoming report, the performance of the healthcare sector will become the core focus of market attention. As a key engine of employment growth in the U.S. over the past few years, the healthcare sector unexpectedly lost 28,000 jobs in February, directly dragging down the overall employment performance for that month.

From leading indicators, the healthcare sector remains the only core support for the current U.S. job market. The ADP's private employment report released on Wednesday showed that the private sector added 62,000 jobs in March, slightly exceeding market expectations, with 58,000 of those new jobs coming from the healthcare sector. However, ADP Chief Economist Nela Richardson pointed out that this growth hides concerns—most of the new positions are low-paying home care jobs rather than full-time positions with complete benefits, which severely limits their ability to support consumer spending. Data shows that over the past year, if the healthcare sector is excluded, the U.S. job market would have recorded a net loss of over 500,000 jobs At the same time, the U.S. labor market is undergoing profound structural changes, and the criteria for judging "healthy employment data" have been completely rewritten. Guy Berger, Chief Economist at Homebase, stated that the market needs to redefine what constitutes good or bad employment data; job loss figures that previously triggered recession fears no longer cause excessive market fluctuations.

The latest research from the St. Louis Federal Reserve shows that the monthly job creation breakeven point needed to maintain a stable unemployment rate in the U.S. has dropped to a minimum of 15,000 jobs, with an upper limit of only 87,000 jobs, a significant decline from the estimated 153,000 jobs on April 15, 2025. In August 2025, the institution still projected a breakeven range of 32,000 to 82,000 jobs. This indicates that the U.S. job market no longer requires the previous high levels of job creation to maintain full employment.

Due to immigration restrictions, demographic changes, and geopolitical uncertainties, U.S. companies have maintained a "low hiring, low layoffs" status for over a year, resulting in an overall stagnation in the job market. Earlier data from the Labor Department showed that the hiring rate in the U.S. job market dropped to 3.1%, the lowest level since the COVID-19 recession in 2020, with the last occurrence of a lower figure dating back to January 2011. The latest unemployment claims data indicates that the number of initial unemployment claims in the U.S. fell to 202,000 last week, nearing the lowest point since 2026; the scale of layoff announcements by U.S. companies in the first quarter of 2026 also reached the lowest level since 2022. Although layoff announcements increased in March, there have not yet been signs of large-scale layoffs.

However, 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 in the next 12 months, with EY-Parthenon increasing the recession probability to 40%, predicting that the U.S. job market will be largely frozen in 2026, with hiring becoming selective and wage growth under continued pressure, prompting companies to implement strategic personnel adjustments.

The Impact of AI Layoffs Emerges, Middle East Conflict Becomes the Biggest Uncertainty

It is worth noting that AI is becoming a new source of downward pressure on the U.S. job market. The latest report from global reemployment service provider Challenger, Gray & Christmas shows that in March, U.S. companies announced planned layoffs totaling 60,620, with 15,341 layoffs directly attributed to AI.

"Companies are shifting their budgets towards AI investments at the expense of jobs," said Andy Challenger, Chief Revenue Officer of the agency. The technology sector has already seen instances of AI replacing coding positions, and other industries are also testing the application boundaries of this new technology. Although AI cannot completely replace jobs, it has indeed caused job losses.

Even more concerning for the market is the ongoing escalation of geopolitical conflicts in the Middle East, which may resonate with the effects of AI replacement, further impacting the U.S. job market. The conflict triggered by the U.S. and Israel's strikes against Iran on February 28 is entering its sixth week, and the supply tensions caused by disruptions in shipping through the Strait of Hormuz have created shockwaves in the global market. Domestic gasoline prices and corporate transportation costs in the U.S. have risen significantly, raising concerns that the impact of the conflict will quickly spread throughout the entire economic system Economists generally expect that due to the non-farm payroll report's employment survey being conducted in the middle of the month, it can only capture the initial impacts of the conflict. Additionally, geopolitical uncertainties are more likely to lead companies to pause hiring plans rather than directly implement large-scale layoffs. Therefore, this conflict is not expected to have a significant impact on March employment data. However, if the duration and scale of the conflict further expand, its lagging effects on the labor market will quickly become apparent.

Audrey Guo, an assistant professor of economics at the Leavey School of Business at Santa Clara University, stated that if the conflict continues and energy prices remain high, companies will accelerate the application of AI to reduce labor costs in order to cut expenses. At that time, the substitution effect of AI on employment will be further amplified.

Joe Brusuelas, chief economist at RSM US, bluntly noted that rising energy prices will affect all households and industries, with no sector being immune. The surge in oil prices and shortages of key materials such as fertilizers will quickly drive up prices across all categories of goods and services, squeezing disposable income for residents and leading to "demand destruction."

Dean Baker, co-founder of the Center for Economic and Policy Research, pointed out that discretionary spending is expected to be the first to be impacted, and the restaurant industry is the only major source of employment growth in the U.S. aside from healthcare and social assistance. If high-income households reduce dining expenditures due to stock market declines, it will put significant pressure on the overall labor 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 of the shock, we have 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 the end of the year."