The March employment report will be the first important release of data for the period after the start of the Iran war. The job market was already looking weak before the start of the war, with the February jobs report showing a loss of 92,000 jobs.

It’s likely that part of February’s weakness was due to better than usual January weather boosting that month’s numbers. Bloated January numbers can then lead to a fall in February, when there is no weather boost.

But taking the period from December to February together, the average job gain over this three-month period was just 8,000. The ending of substantial immigration flows drastically reduced the number of jobs needed to keep even with the growth of the labor force, but 8,000 is lower than anyone’s estimate of the current pace needed.  

It’s also worth noting that all the job growth over the last year came from the category of health care and social assistance. Most other major sectors, like retail, manufacturing, and mining, showed little growth or actually lost jobs. The restaurant sector was the other major exception, adding 129,000 jobs from February 2025 to February 2026.

The picture for March is almost certain to look worse, as the price of gas jumped sharply with the start of the war, as did mortgage interest rates. Uncertainty created by the war likely also led people to put off major purchases, like buying a house or a car. It is important to remember that the survey is taken in the middle of the month, so the data will only capture part of the impact of the war in March.

Restaurant Employment Likely to be Hit First

With people paying more for gas and worried about the future, spending at restaurants is almost sure to be hit. Spending at restaurants is one of the easiest areas for households to cut back in hard times. Real spending at fast food restaurants had already been trending downward since September, as many workers have been feeling pinched.

Overall restaurant spending had been growing modestly, presumably driven by higher income households spending based on stock gains. With the market falling sharply following the start of the war, higher income households may also be curtailing spending. 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.

Manufacturing Continues Its Decline, Construction Likely Flat

The manufacturing sector has been slowly shedding jobs for the last two years, losing an average of 13,000 jobs a month. That decline is likely to continue in March and will probably not be affected by the war. Construction employment has been almost flat over the last year. That will likely be the case in March, although the jump in mortgage rates may have had a small negative effect.

Health Care Likely to be Main Growth Sector

The health care and social assistance sector is likely to again be the main source of job growth. The March number will be boosted by the ending of a strike that had idled 30,000 workers in February. State and local government added an average of 15,000 jobs a month over the last year, but employment has been virtually flat since October. These governments are feeling a pinch from federal cutbacks. There will be little change in employment in March.

Wage Growth May Edge Lower

Wage growth has slowed modestly from a 4.0 percent annual rate in 2023 and 2024 to a 3.8 percent year-over-year increase in the February data. The Employment Cost Index showed a somewhat slower pace of 3.5 percent in the 4th quarter data. The Indeed index for wage posting for new jobs is showing just a 2.1 percent year-over-year rise. With continuing weakness in the labor market, wage growth may slow further in the Average Hourly Earnings series.

Unemployment Likely to Edge Higher

The unemployment rate had trended slowly upward in 2025 from 4.0 percent in January to 4.5 percent in November. It then fell modestly in the next two months before rising back to 4.4 percent in February. It is likely to again edge higher in March.

More important will be the situation for disadvantaged groups. The unemployment rate for Black workers hit 8.2 percent in November. It then fell the next two months but rose back to 7.7 percent in February. Similarly, the unemployment rate for young workers between the ages of 20-24 rose sharply in 2025, hitting 8.3 percent in November. It fell back the next two months but also rose in February to 7.4 percent. The unemployment rate for both groups is likely to rise again in March.

Share of Unemployment Due to Quits to Remain Low

We have seen a low hire, low fire economy for the last two years. The share of unemployment due to quits stood at 11.4 percent in February. This is low for an economy with an unemployment rate close to 4.0 percent. This share is likely to drop further in March, although the monthly data are erratic.

Another indication of labor market weakness is the average duration of unemployment spells, which rose to 25.7 weeks in February, the highest level since February of 2022. This will likely increase further in March.

Rising Unemployment for College Grads

While the unemployment rate for college grads, at 3.0 percent, remains well below the unemployment rate for workers with less education, they have been hit relatively hard in the last year. Their unemployment rate is 0.5 percentage points higher than a year ago and the highest since February 2021. It is likely that AI is at least part of the story here.

Overall Picture: Further Weakening, but No Collapse

The economic impact of the war to date is mostly seen in higher prices. The weekly data on unemployment insurance claims shows no evidence of a major hit to the labor market, with the latest numbers actually showing a decline in both new claims and continuing claims.

However, the labor market had been weak by most measures even before the start of the war. The impact in the labor market will most likely be seen first in a slower pace of hiring. There will likely be evidence of this in the March jobs report, but again it is important to remember the survey period is the middle of the month, so we will only be seeing two weeks of the war’s impact.