Job growth in the US showed weakness last year; however, indications of stabilization, if not a recovery, began to surface. The ongoing conflict, occurring thousands of miles away, not only disrupts the potential for progress but also poses a risk of derailing the labor market even further. Four weeks have elapsed since the United States and Israel initiated military actions against Iran. The economic repercussions of the intensifying and lethal conflict in the Middle East have been rapid: A blocked essential shipping route has led to a surge in oil prices, disrupted the supply chain, and increased gasoline costs. Concerns regarding inflation have intensified, alongside a rise in uncertainty. This is a factor that has significantly constrained the labor market. “If the Strait of Hormuz remains closed and the oil price stays above $100 through April, then I think it’s a game-changer,” stated Heather Long. “In that scenario, we would be looking at a significantly altered economic landscape, which would likely bring layoffs back into consideration.” The current labor market dynamic, characterized by a lack of vigor and a “low-hire, low-fire” approach, is anticipated to continue … at least for the time being. “Uncertainty is delaying, not canceling, hiring plans,” stated Gregory Daco in an interview. Daco currently anticipates a “jobless” expansion, projecting employment gains of approximately 20,000 per month during the first half of the year, while unemployment, presently at 4.4%, is expected to trend toward 4.7% by year-end. “With recession odds around 40%, the risk is that a prolonged pause in hiring eventually turns into more visible softening,” he stated. “At this point, it remains a cooling, not a cracking.” However, should uncertainty begin to rise again, those vulnerabilities might become apparent by late spring.
Last year marked one of the weakest performances for the US labor market in decades, excluding recession periods. The latest official estimates indicate that the economy added only 116,000 jobs in 2025. In 2024, the economy experienced an addition of approximately 121,000 jobs each month, a figure consistent with historical averages. There was a sense of optimism that the employment gains would not be as limited this year. Inflation was anticipated to moderate, with a series of interest rate reductions in late 2025 influencing the wider economy, while the new tax legislation was expected to stimulate consumer expenditure and business investment. Furthermore, uncertainty – the most significant factor – could diminish as businesses achieved improved understanding of the economy, borrowing expenses, tariffs, and various federal regulations, along with technological progress and geopolitical changes. The recent conflict in the Middle East has heightened that uncertainty. “Our data does not indicate any significant changes in the job market in the US, whether it be a dramatic improvement or a notable decline,” stated Laura Ullrich, director of economic research at the Indeed Hiring Lab, during an interview. “The current situation appears to be relatively stable, yet lacking in growth.”
Since the onset of the war, oil prices have experienced a significant increase, rising by approximately $30 a barrel, with a peak increase of up to $50 a barrel at one point. Each $10 increment of those increases carries substantial economic implications, ranging from a reduction in GDP growth to an uptick in inflation, according to economists. Certain impacts have been felt right away by American consumers. According to AAA data, the average price of gas in the US has increased by $1, now standing at $3.98 per gallon compared to pre-war averages. Increased energy expenses, including gas, heating, and utilities, may adversely impact annual household income by over $1,350. The elevated expenses are anticipated to persist beyond this point. The OECD indicated on Thursday that the inflation rate in the US may increase to 4.2% this year, compared to 2.4% in February, according to the Consumer Price Index. Analysts are paying close attention to the resilience of the American consumer in the face of rising gas prices, as well as escalating oil prices that may impact the overall cost of goods and services across the economy. With consumer spending representing two-thirds of economic activity, a decline in this area could pose significant challenges for the US labor market.
Navy Federal Credit Union’s data on credit and debit card spending indicates an increase in expenditures on energy and gas. Additionally, consumers seem to be “front-loading” certain purchases, reminiscent of their behavior last year in anticipation of significant tariffs, according to Long. “Individuals are likely aware that air fares are on the rise, leading to potentially higher costs for summer vacation plans, prompting them to secure their bookings at this time,” she stated. Assisting certain consumers is a somewhat larger financial buffer, she remarked, highlighting that tax refunds have been, on average, 10% greater than the prior year. The ongoing level of expenditure may help avert possible layoffs, but according to Long, this situation cannot persist forever. “However, at this moment, consumers are managing to hold on,” she noted. This week will see the release of several new labor market data points, encompassing turnover rates, private-sector hiring figures, layoff announcements, and the essential monthly jobs report.