US labor market rebounds US labor market rebounds http://www.federatedinvestors.com/mmdt/static/images/mmdt/mmdt-logo-amp.png http://www.federatedinvestors.com/mmdt/daf\images\insights\article\jobs-handshake-small.jpg April 6 2026 April 3 2026

US labor market rebounds

But will the Iran conflict weigh on employment in the coming weeks?
Published April 3 2026

Bottom line

It turns out that February’s disastrous US jobs report was an aberration after all, impacted by brutal winter weather that cost 228,000 jobs, a health care strike in California and Hawaii involving another 31,000 workers, and a downward population revision of 1.4 million household workers.  

Despite the full-blown military conflict in Iran, the labor market rebounded solidly in March, posting a much stronger-than-expected gain in nonfarm payrolls of 178,000 jobs, a 15-month high. The consensus expected a gain of 65,000 jobs, and Federated Hermes estimated an increase of 115,000. That compares quite favorably with February’s downwardly revised loss of 133,000 jobs and January’s upwardly revised final gain of 160,000. Private payrolls added a stronger-than-expected 186,000 jobs in March (consensus gain of 78,000 jobs expected), compared with a downwardly revised loss of 129,000 jobs in February and an upwardly revised final gain of 180,000 jobs in January.

The employment rebound in March is consistent with recent strength in other key labor-market indicators, including jobless claims, the private ADP payroll survey, Challenger layoffs and worker productivity. In addition, several other recent macroeconomic data points were better than expected, such as retail sales, the Conference Board’s consumer confidence index, the ISM manufacturing index, auto sales and the trade balance.

Other March labor-market data The unemployment rate (U-3) slipped to an eight-month low of 4.3% last month, while average hourly earnings declined to a nearly five-year low of 3.5%, collectively implying full employment with low inflation. Moreover, several key labor-market sectors enjoyed a sequential improvement in March: manufacturing added a 29-month high of 15,000 jobs last month, up from a loss of 6,000 jobs in February; construction leapt from a loss of 13,000 workers in February to a gain of 26,000 in March; retail added 10,000 jobs last month after shedding 8,000 in February; and leisure & hospitality hiring surged by 44,000 workers in March (likely due to better weather) after losing 11,000 jobs in February.

What will the Federal Reserve do with the news? In a word, nothing — at least according to the futures market. With the Iran conflict in full bloom, crude oil prices (West Texas Intermediate, or WTI) have soared nearly 75% over the past five weeks, from $65 on February 27 to around $114. Lagging gas prices at the pump have risen 37% nationally, from $2.98 per gallon at the end of February to more than $4.00. 

Even if the Iran conflict ends this month, oil-tanker traffic through the Strait of Hormuz — and a return to lower energy prices — is anything but guaranteed. The Fed is legitimately concerned this spike in oil prices could lead to a sustainable surge in inflation. Core PCE inflation (the Fed’s preferred measure) rose to a two-year high of 3.1% year-over-year (y/y) in January 2026 (up from 2.6% last April) but is expected to have eased to 3.0% in February. Could higher-for-longer energy prices result in a stagflationary or recessionary spiral? And if so, how might the Fed adjust? While the Fed’s leadership transition issues potentially complicate this discussion, we expect the central bank to refrain from adjusting its policy rate until it gains greater clarity in the back half of this year.

Other key labor-market indicators presaged the robust report:

  • Productivity rose an average of 3.7% over the last three quarters of 2025 as the 100% expensing provision in last year’s One Big Beautiful Bill sparked stronger corporate spending — roughly double the average productivity gain of 1.9% in the US over the past half century. 
  • Initial weekly jobless claims declined to a nearly three-month low of 202,000 for the week that ended March 27, while last week’s four-week moving average plumbed a two-month low of 207,750. Claims are now running just above a two-year low.
  • ADP private payrolls rose a much stronger-than-expected 62,000 jobs (consensus gain of 40,000 expected) in March, versus an upwardly revised gain of 66,000 jobs in February. Workers who changed jobs last month saw their wages rise by 6.6% y/y, less than half the cycle peak of 16.1% in April 2022. Job stayers earned a more modest boost of 4.5% y/y, well below the peak of 7.8% in September 2022.
  • Challenger, Gray & Christmas layoffs report said that companies announced job cuts of 60,620 in March, 25% higher than February but 78% lower than year-ago levels. The technology industry accounted for 31% of the layoffs last month, likely due to the growing adoption of AI. 
  • Job Openings & Labor Turnover Survey (JOLTS) pointed to a continuation of the “low-fire, low-hire” environment in the labor market. February job openings declined to 6.88 million, down nearly 5% from 7.24 million in January but higher than December 2025’s five-year low of 6.55 million. That is almost 44% below a record 12.182 million job openings in March 2022. New hires at a nearly six-year low of 4.85 million in February declined by 9.3% from January. The rate of job openings declined to 4.2% in February from 4.4% in January but was still above December 2025’s five-year low of 4.0%. The record was 7.4% in March 2022. The ratio of available job openings for every unemployed worker slipped to a five-year low of 0.9 in February, down from 1.0 in January and well below a peak of 2.0 in March 2022. The quits rate slipped to a nearly six-year low of 1.9% in February, down from 2.0% in each of the previous three months.

Unemployment & participation rates fall, labor impairment rises Household employment declined by 64,000 workers in March, compared with larger decreases of 185,000 in February and 895,000 in January. December added 232,000 jobs. As a result, U-3 declined to an eight-month low of 4.3% in March, down from 4.4% in February. April 2023’s 53-year low is 3.4%. The Fed expects U-3 to finish 2026 at 4.4%.

The labor impairment rate (U-6) increased a tick to 8.0% in March from a seven-month low of 7.9% in February. The cycle low (dating back to 1994) is 6.6% in December 2022. The participation rate ticked down to a five-year low of 61.9% in March from 62.0% in February, down from an eight-month high of 62.5% in November 2025.

Wage inflation & hours worked decline Average hourly earnings slowed to a 0.2% month-over-month pace in March, half of February’s 0.4% rate. Wage growth decelerated to a nearly five-year low of only 3.5% y/y in March, down from a 3.8% y/y pace in February. Hours worked ticked down to 34.2 in March from 34.3 in February. Each 0.1 decline is the equivalent of subtracting an estimated 350,000 workers from the economy.

K-shaped labor gap widens The unemployment rate of highly educated workers declined to 2.8% from 3.0% in February, though still higher than September 2022’s cycle low of 1.8%. But the unemployment rate of less educated workers leapt to 5.9% in March from 5.6% in February and 5.3% in January. While that figure is lower than the 6.8% seen in November 2025, it is higher than its 31-year low of 4.4% in November 2022.

Sector details positive:

  • Temporary help added 4,000 jobs in March, while February was revised from a loss of 7,000 jobs to breakeven and January was revised from a gain of 3,000 to a final gain of 19,000 jobs. 
  • Manufacturing added a 29-month high of 15,000 jobs last month, up sharply from a downwardly revised loss of 6,000 jobs (preliminary loss of 12,000) in February and a gain of 2,000 jobs in January, after eight consecutive months of job losses. 
  • Construction leapt to a gain of 26,000 in March from a loss of 13,000 jobs in February, after adding 45,000 jobs in January. 
  • Retail added 10,000 workers in March after shedding 8,000 jobs in February and adding 13,000 jobs in January. Retail sales were surprisingly strong in February, a trend we expect to continue into March. 
  • Leisure & hospitality hiring surged by 44,000 workers in March (likely due to better weather) after losing 11,000 jobs in February (preliminary decline of 27,000 jobs). January added 5,000 jobs (preliminary loss of 12,000 jobs). December added 25,000 jobs. 

Read more about our views and positioning at Capital Markets.

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DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

The Conference Board's Consumer Confidence Index measures how optimistic or pessimistic consumers are about the economy.

The Job Openings and Labor Turnover Survey (JOLTS) is conducted monthly by the U.S. Bureau of Labor Statistics.

The Institute of Supply Management (ISM) manufacturing index is a composite, forward-looking index derived from a monthly survey of U.S. businesses.

Personal Consumption Expenditures Price Index (PCE): A measure of inflation at the consumer level.

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