Author：Wall Street CN

The U.S. March non-farm payroll data will be released tonight. The market expects a strong rebound from the sharp contraction in February, but the ongoing situation in the Middle East is pushing up inflationary pressures, making the Fed's policy outlook increasingly complicated.

Market consensus expects 65,000 new non-farm payroll jobs to be added in March.The figure represents a significant rebound from the weak February data, which saw a sharp drop of 92,000 jobs. The forecast range is between -16,000 and +150,000. Goldman Sachs expects an increase of 70,000, higher than the market consensus, with the end of the strike and improved weather each contributing approximately 32,000 jobs. Barclays, however, is more conservative, forecasting an increase of 50,000. Meanwhile, the March ADP employment data came in at 62,000, exceeding the market expectation of 40,000, laying some groundwork for tonight's data.

More than a month into the conflict with Iran, the continued blockade of the Strait of Hormuz has triggered sharp fluctuations in oil prices, raising inflation risks. Federal Reserve Governor Waller admitted that, had it not been for the conflict, he might have been inclined to cut interest rates after the last Federal Open Market Committee (FOMC) meeting.He also warned that if oil prices remain high, they will seep into core inflation, at which point the Federal Reserve's ability to "see through" a one-off shock will be greatly reduced.The Federal Reserve is currently keeping its policy interest rate unchanged and is in a wait-and-see mode.

The importance of tonight's data lies in the fact that it will be a key reference for the Federal Reserve to assess the resilience of the labor market—with inflationary pressures rising again due to geopolitical conflicts, the strength of the employment data will directly affect the market's prediction of the timing of interest rate cuts.

A significant rebound is expected, but analysts are wary of the risk of a correction.

The core expectation for March's non-farm payrolls data is an increase of 65,000 jobs, a stark contrast to the sharp drop of 92,000 in February. Private sector employment is expected to rebound to +73,000 from -86,000, the unemployment rate is expected to remain unchanged at 4.4%, and hourly wages are expected to rise 0.3% month-on-month (previous value 0.4%), with the year-on-year growth rate remaining at 3.8%.

It is worth noting that analysts generally cautioned to pay attention to revised data.According to ING's analysis, the January data may be overestimated, while the February data may be underestimated, and this two-way distortion reduces the reference value of the single-month reading. ING maintains its forecast of 65,000, and points out that if corporate hiring has already stagnated when the economic environment is relatively stable, the incentive for companies to further expand recruitment will only weaken as geopolitical and economic uncertainties intensify.

Forward-looking indicators showed divergence. March ADP employment increased by 62,000, better than expected; initial jobless claims fell to 205,000 during the survey week, lower than the expected 215,000; continuing jobless claims also decreased slightly from 1.833 million to 1.819 million. However, the ISM manufacturing employment sub-index slightly decreased from 48.8 to 48.7, with both manufacturing and service sector employment sub-indices in contraction territory, indicating weak employer survey signals.

The end of the strike and improved weather were the two main drivers supporting the rebound.

Goldman Sachs points out that two technical factors will provide substantial support for the March employment data.

First, the workers' strike ended.The U.S. Bureau of Labor Statistics strike report shows that the end of the strike will contribute approximately 32,000 jobs to the March nonfarm payrolls.Secondly, the weather has improved.Severe weather in February dragged down employment in climate-sensitive industries by 38,000 people, but with improved weather conditions in March, employment in these industries is expected to recover.

In addition, the unemployment claims data also provide a positive signal.During the week of the March survey, the average number of initial claims dropped from 220,000 in February to 211,000. Although the number of layoffs announced by Challenger and Gray & Christmas increased by 12,000 to 61,000 compared to the previous week, the overall number remained in a relatively mild range.

Federal employee downsizing and AI-driven layoffs: structural headwinds suppressing employment.

Goldman Sachs predicts a loss of 5,000 government jobs, with approximately 10,000 of those losses coming from the federal government, partially offset by an increase of 5,000 jobs in state and local governments. The federal government's hiring freeze remains in effect and is expected to continue suppressing government employment.

AI-driven layoffs in the tech industry also pose a potential drag.Block announced plans to lay off approximately 40% of its workforce, raising growing concerns in the market about the speed at which companies are replacing human labor with AI. Oracle is also laying off up to 10,000 employees following its massive AI investments, although it is not yet clear whether the layoffs are directly related to AI.

Conference Board data shows that consumers’ evaluation of the current job market is basically flat – 27.3% think jobs are “ample” (previous value 26.7%), and 21.5% think they are “difficult to find” (previous value 21.0%) – but their expectations for future employment prospects have deteriorated: 15.4% expect future employment to increase (previous value 16.0%), and 27.9% expect it to decrease (previous value 26.2%).

The Federal Reserve is taking a wait-and-see approach, with inflation concerns outweighing employment considerations.

The Federal Reserve is currently keeping its policy rate unchanged. Only Miran, a staunch dovish member, dissented at the most recent meeting; the remaining members generally agreed that the current policy is in an "appropriate position." Chairman Powell stated that a "significant majority" of FOMC members are concerned about the "extremely low" level of job growth.The labor market—particularly private sector employment—is under close scrutiny, but employment risks have not yet dominated policy direction.

Of particular note is the change in the non-farm payrolls "break-even point." Both Powell and Waller have suggested that, due to the significant decrease in illegal immigration, this threshold may have approached zero—the reduction in immigration has cut both the number of jobs (numerator) and the labor supply (denominator). A recent study by the St. Louis Fed estimates the break-even point at 15,000 to 87,000, noting that "the wide range reflects the high degree of uncertainty surrounding immigration flows."

Waller made it clear that he would support interest rate cuts if the labor market weakens significantly in the second half of the year; Williams, on the other hand, expects the unemployment rate to decline slightly in the next two years and believes that the current signals from the labor market are "mixed".

The ongoing lockdown in Hormuz poses the biggest variable: inflation risk.

The war with Iran has lasted for about a month, and the blockade of the Strait of Hormuz has caused sharp fluctuations in the oil market. Its potential impact on inflation and monetary policy remains highly uncertain. Federal Reserve member Schmid warned that the inflationary pressures triggered by rising oil prices may not be temporary and will have a mild drag on economic growth. Waller also pointed out that if high oil prices persist, they will transmit to core inflation, limiting the Fed's ability to maintain an accommodative stance on the grounds of "seeing through temporary shocks."

Several signs of easing tensions have emerged recently on the diplomatic front. Trump stated that Iran's new president has sought a ceasefire, and the US indicated it would consider accepting it once the Strait of Hormuz reopens, adding that the US would withdraw from Iran "quite quickly." The Iranian president, in turn, stated that Iran has no intention of prolonging the war and is willing to end the conflict on the condition of receiving security guarantees against further attacks.

The progress of the ceasefire negotiations will be a key window for observing oil price trends and the Federal Reserve's policy space, and its importance may be no less than tonight's non-farm payroll data itself.