Hiring in March was surprisingly strong, signaling the labor market was stabilizing early on in the Iran war.

US employers added 178,000 jobs in March – above expectations of 59,000 added jobs and a rebound from a revised decline of 133,000 the previous month, the Bureau of Labor Statistics said Friday.

The unemployment rate ticked down to 4.3%, from 4.4% in February.

While the unemployment rate posted a decline, that was largely because the labor force dropped by 396,000. The percent of working-age Americans in the labor force fell to 61.9%, the lowest level since November 2021.

Revisions to the previous two months lowered employment in January and February down by a combined 7,000.

The stock market was closed in observance of Good Friday, making it difficult to glean a reaction from investors. 

But the new jobs report indicates that the Fed – which has been deeply divided over whether to prioritize inflation risks or weak unemployment – can likely shift its focus to inflation, which typically means higher interest rates.

“The US labor market continues to be resilient, defying even the harshest skeptic,” Jamie Cox, managing partner for Harris Financial Group, said in a note Friday. 

“The bad news is, if the labor market remains this stable, it will be very difficult to justify further rate cuts.”

The Bureau of Labor Statistics’ surveys for the month, however, were completed by March 12, less than two weeks into the US and Israel’s war with Iran, so the results are largely backward-looking.

Since then, oil has soared above $100 a barrel and gasoline has hit more than $4 a gallon.

Analysts have warned that attacks on key energy facilities in the Middle East could leave prices elevated even if the war ends soon, while economists are concerned higher energy costs could ripple across consumer prices and slow job growth.

“Although most of this data is from the period prior to the war, it establishes a baseline of a resilient economy,” Chris Zaccarelli, chief investment officer for Northlight Asset Management, said in a note Friday. 

“At the margin, this would make the Fed less likely to rush to cut interest rates. However, it also reinforces the idea that the job market is holding up, which should allow consumer spending to continue – a key lynchpin in this economy.”

Health care was a strong point in the labor market, adding 76,000 jobs in March after a strike at Kaiser Permanente hit the sector hard the previous month.

Employment in construction grew by 26,000 as temps warmed, while transportation and warehousing added 21,000 jobs.

Federal government employment declined by 18,000. Since hitting a peak in October 2024, the sector is down by 355,000 workers, or 11.8%, after Elon Musk’s Department of Government Efficiency slashed federal workers and foreign aid.

Average hourly earnings growth slowed, rising by just 0.2% on a monthly basis.

The US has been facing a stubbornly slow pace of job growth, with the economy adding virtually zero jobs over the past year as many employers paused hiring while they waited to see how President Trump’s tariffs would impact prices.

Employers have added an average of 68,000 jobs over the past three months, including the March data. As of February, that three-month average was less than 6,000 jobs.

It’s possible heightened tensions over the war in Iran over the past few weeks have convinced more employers to halt hiring, though this impact wouldn’t be visible in the March jobs report.

Meanwhile, experts say the Trump administration’s intense deportation efforts have likely contributed to the low unemployment rate since it has reduced the number of people looking for work.