U.S. March employment rebound masks underlying concerns; Middle East tensions may accelerate cooling of the job market

On the evening of April 3, the U.S. Bureau of Labor Statistics (BLS) will release employment data for March. After the employment figures in February came in well below expectations, markets currently widely expect that March nonfarm payrolls will rebound to some extent, with nonfarm additions possibly around 65,000.

This time, however, the rebound is driven more by technical corrections. The weakness in February employment was mainly dragged down by two factors: first, unusually cold weather suppressed employment in the construction, retail, and leisure services industries; second, a strike by Kaiser Permanente of California led to a sharp drop in medical-sector employment (31,000 jobs). As the weather warms in March and the strike ends, these headwinds are expected to reverse clearly, resulting in a mechanical catch-up. From a structural perspective, education and healthcare, leisure hotels, and construction are expected to be the main sources of this month’s employment rebound, but this reflects more of short-term repair rather than an expansion in new demand.

The ADP “small nonfarm” released on April 1 confirmed this logic: in March, the U.S. added 62,000 jobs in the private sector, far above expectations of 40,000.

With the unemployment rate as the key focus of this report, it is still expected to remain around 4.4%. However, given that the unemployment rate in February before rounding already stood at 4.441%, there is a risk that this month’s figure will rise due to rounding to 4.5%. Small fluctuations in the labor force participation rate and sample rotation in the household survey could both become important factors pushing the unemployment rate upward.

As for wage growth, the average hourly earnings are expected to rise 0.3% month over month in March, down from the strong pace of 0.4% in the previous two months. Year over year, the growth rate may also fall to around 3.7%, indicating that the trend of wage disinflation is still ongoing.

Even more worth paying attention to is the job openings data released by the BLS on March 31. February JOLTS job openings fell to 6.882 million; although this met market expectations, the ratio of job openings to the number of unemployed (V/U) dropped to 0.91, far below the 2.0 peak in early 2022. Labor market liquidity is still contracting sharply: the private-sector hiring rate declined 0.4 percentage points to 3.1%, setting a new cyclical low for this expansion phase.

Job demand appears stable on the surface, but employment demand is actually falling; geopolitical conflicts may have a lagged impact