WASHINGTON (TNND) — The labor market showed new signs of strength in March, but cooling underlying growth and a new energy shock threaten to test how long that resilience will last.
While job growth rebounded from a dismal February, broader trends point to a slowing and uneven labor market with tepid hiring, rising long-term unemployment and more Americans dropping out of the workforce.
America’s labor market has repeatedly proven resilient, surviving multi-decade highs in inflation, an aggressive ramp-up of interest rates and whiplash tariffs. The question is how long that will last and if a global energy shock could pose a different kind of threat.
The economy added 178,000 jobs last month, a significant turnaround after businesses shed 133,000 in February. But the gains were only driven by a handful of sectors with healthcare, social assistance and leisure and hospitality accounting for most of the gains.
A broader view of the labor market gives a less encouraging outlook. The U.S. has lost jobs in five of the last 12 months, net payroll growth has slowed to roughly 20,000 during that period and the share of people who have been out of work for extended periods has moved steadily upward.
“Simply put, under the hood of the headline blockbuster payroll increase and the aberrational drop in the unemployment rate, the labor market looks more fragile than sturdy,” Bob Schwartz, senior economist at Oxford Economics, wrote in a report.
March’s figures were a continuation of a longer-running trend, with healthcare and social assistance driving hiring while most other industries stand pat or make cuts. Since the start of 2025, healthcare and social assistance has added around 855,000 positions, while the rest of the private sector has cut 322,000.
The concentration of the jobs in healthcare and social assistance reflects an aging U.S. population, but also more people turning to safe harbor sectors for employment.
Unemployment also fell to 4.3% in March from 4.4% the month prior, though it was driven by a reduction in the labor force participation rate. There were nearly 400,000 fewer people in the market for a job and the share of Americans looking for work fell to its lowest level since the fall of 2021.
The Trump administration’s crackdown on immigration has helped offset the reduction in job creation. With fewer available workers in the country, the economy doesn’t need to create as many jobs to keep the same share of people working.
Even as companies have pulled back on hiring, most are keeping the employees they have. Layoffs have stayed near historical lows, providing stability for people with jobs but making it more challenging for unemployed workers to find one.
That fragile balance is now facing a new test.
The war in Iran and resulting oil spike have created a new challenge for the economy to weather. March’s jobs report did not capture much of the jump in oil prices, now above $100 a barrel, raising costs for businesses and prices for consumers at the pump.
Household budgets are already being squeezed by the last five years of inflation, meaning consumers have less room to absorb the increase in gas prices without cutting back on spending in other areas. A slowdown in consumer spending — the primary driver of the U.S. economy — could force companies to pull back on hours, hiring or shrink their workforces.
“It’ll manifest in several ways, and it’ll be different at each company,” said Ryan Young, senior economist at the Competitive Enterprise Institute. “Everything is interconnected. Everything depends, in the end, on energy and I think we’re going to find that out the hard way.”
Energy prices are expected to keep climbing as the conflict continues and are likely to linger to the end of the year.
Energy infrastructure around the Gulf has been damaged in the conflict and traffic through the Strait of Hormuz has effectively stopped. OPEC members warned on Sunday of a long recovery for the industry even once the war is over.
The full impact is not yet clear, but the energy shock is dampening the outlook for economic growth and employment.
“With the energy price shock and higher energy prices here to stay, the outlook is now worse than it was before,” Young said.
Higher energy prices also mean faster inflation, tying the Federal Reserve’s hands to deliver cuts to interest rates to bolster the economy and job growth. Fed chair Jerome Powell said last week the war with Iran raises the chance they may have to choose between addressing inflation or propping up the labor market, though they were not at that point yet.
Reducing interest rates helps bolster economic growth by making it cheaper to borrow money, helping businesses make investments to grow and consumers to pay for goods and services. With the risks to inflation rising, that support may be unavailable if the labor market weakens any further.