US job growth was flat last year, but signs of stabilization, if not a rebound, were beginning to emerge.
Now, a war thousands of kilometers away not only hinders potential development, but also threatens to further disrupt the labor market.
It has been four weeks since the US and Israel began attacking Iran. The economic impact of the escalating and deadly conflict in the Middle East is immediate: The blockade of a key shipping lane has sent oil prices skyrocketing, disrupting supplies and driving up gasoline prices. Inflation fears have increased, as has uncertainty. That’s a strong performance that choked the labor market.
“If the Strait of Hormuz stays closed and oil prices stay above $100 until April, then I think that’s a game changer,” Heather Long, chief economist, said. “Now you’re talking about a very different economy, and then you’re talking about retirees coming back into the picture.”
The listless, anemic, “low-hiring, low-burning” labor market is expected to continue…for now.
“Uncertainty is delaying, if not canceling, hiring plans,” Gregory Daco, chief economist at EY-Parthenon, told CNN last week.
Daco is currently expecting “neutral” growth with job gains of around 20,000 per month in the first half of the year and unemployment (currently 4.4%) drifting to 4.7% by the end of the year.
He wrote: “With the odds of a recession nearing 40%, the risk is that the long hiatus in hiring ends up turning into apparent easing.” For now, it’s cooling, not cracking. But if the uncertainty were to worsen again, those cracks could appear after a year.”
Now, last year was one of the weakest for the US labor market in decades, outside of recession years.
The economy has added just 116,000 jobs by 2025, the latest official projections show. For comparison’s sake, the economy added about 121,000 jobs per month in 2024, a rate that was in line with historical numbers.
However, there was hope that the wages of labor would not be too weak this year.
Inflation was expected to ease, interest rate cuts after 2025 had fed into the broader economy and the new tax law was expected to boost consumer spending and business investment.
In addition, uncertainty – the largest area of all – has had the opportunity to decrease as companies become more transparent in the economy, borrowing costs, tariffs and other government policies, technological advances and political developments.
The new conflict in the Middle East has added to that uncertainty.
“We haven’t seen anything in our data that would lead us to think that the job market is getting too high or too bad in the US,” Laura Ullrich, director of economic research at Indeed Hiring Lab, said in an interview. “Things still look stable but stable.”
The price of oil has risen dramatically since the start of the war and has topped $30 a barrel (and at one point was as high as $50 a barrel). Every $10 increase in that increase has major economic effects from slowing GDP growth to price increases, economists say.
Some of the effects were immediate for American consumers. Average US gas prices rose $1 to $3.98 a gallon from their pre-war average, AAA data shows. High energy costs (gas, heating, utilities) can lower your annual income by more than $1,350.
The high costs are not expected to end there. The OECD predicted on Thursday that the US inflation rate could rise to 4.2% this year (it was 2.4% in February, as measured by the Consumer Price Index).
Economists are closely watching how the American consumer fares in the face of not only higher gas prices but also higher oil prices that could affect the cost of goods and services throughout the economy.
Consumer spending accounts for two-thirds of the economy’s jobs, so if that falls, that could cause problems for the US labor market.
Navy Federal Credit Union data on credit and debit card usage shows more dollars going toward energy and gas, but consumers also appear to be “loading” other purchases — just as they did last year in anticipation of higher rates, Long said.
“People can expect airfares to go up and vacation plans for the summer to be more expensive, so they’re trying to book now,” he said.
Helping some customers is a greater use of funds, he said, noting that tax refunds, on average, are 10% higher than last year. Continued spending can stave off a potential recession, but that strength won’t last forever, Long said.
“But for now, customers are hanging on,” he added.
Rounds of new labor market data – including updates on profits, private sector hiring, recession announcements and the key monthly jobs report – will be out this week.
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