U.S. non-farm payrolls for March 2026 exceeded expectations, while the unemployment rate fell more than anticipated to 4.3%. The employment decline in February was influenced by factors including healthcare sector strikes, weather conditions, and model adjustments. The rebound in March reflects the dissipation of these factors, resulting in significant volatility across the two recent reports. The labor force participation rate declined further, contributing to the drop in the unemployment rate. Due to population control adjustments, the participation rate for those aged 55 and above has decreased noticeably since January, while the rate for the 25-54 age group has remained high.
The March non-farm payroll report has no significant impact on the Federal Reserve's monetary policy path. The view is maintained that the Fed is more likely to "look through" the oil price increases resulting from the current Middle East conflict, keeping interest rates unchanged rather than hastily raising them. After Kevin Warsh assumes the role of Chair, a single 25 basis point rate cut is possible in the second half of the year.
Key data: U.S. non-farm payrolls increased by 178,000 in March 2026 (expected 65,000; previous revised figure was a decrease of 133,000). The unemployment rate was 4.3% (expected 4.4%; previous 4.4%). Wages grew 3.5% year-over-year (expected 3.7%; previous 3.8%). The labor force participation rate was 61.9% (expected 62.0%; previous 62.0%).
The main points from CITIC SEC are as follows:
March 2026 U.S. non-farm payroll additions were higher than expected. Healthcare sector payrolls rebounded significantly from February, remaining the primary contributor. Private sector payrolls increased by 186,000, exceeding the expectation of 78,000 and the revised prior figure of a 129,000 decrease. By sector, the goods-producing sector added 43,000 jobs, including 15,000 in manufacturing (durable goods added 15,000; non-durable goods were unchanged). The service-providing sector added 143,000 jobs, with Education and Health Services adding 91,000 (of which Healthcare and Social Assistance added 89,900), Leisure and Hospitality adding 44,000, and Transportation and Warehousing adding 21,000 – these three being the main contributors within private services. Government payrolls decreased by 8,000. The overall employment diffusion index for the private sector was 56.8 in March, while the manufacturing diffusion index was 47.9.
The February employment decline was affected by strikes, weather, and model adjustments. The March rebound reflects the dissipation of these factors, causing the recent data's pronounced volatility. January payroll gains were revised up by 34,000, while February's were revised down by 92,000. The negative payroll growth in February does not fully reflect a sudden deterioration in labor demand but was influenced by strikes, weather, and model adjustments. The March rebound reflects the resolution of these factors: strikes in the healthcare sector in California and Hawaii ended, corresponding to a significant rebound in payroll additions. Severe weather conditions subsided, leading to rebounds in employment in construction and transportation. The new birth-death model also had a smaller impact on March data (the new model reduced March 2026 employment by 47,000, compared to reductions of 21,000 in March 2024 and 33,000 in March 2025, indicating a smaller relative impact this March compared to the previous two months).
The labor force participation rate declined further, driving the unemployment rate down. Due to population control adjustments, the participation rate for the 55 and above age group has decreased noticeably since January, while the rate for the 25-54 age group has remained high. Revisions to the labor force size due to population control adjustments lowered the January participation rate from 62.5% to 62.1%; it fell to 62.0% in February and further to 61.9% in March. Analyzing by age group shows the participation rate for the 25-54 cohort has trended upward post-pandemic, reaching 83.8% in December 2025 and holding at 84.0%/83.9%/83.8% from January to March this year, largely unaffected by the population control adjustments. Conversely, the rate for the 55 and above group has trended downward since 2022, standing at 37.9% in December 2025 and falling to 37.3%/37.3%/37.2% from January to March, showing a clear impact from the adjustments. The falling participation rate contributed to the March unemployment rate decline. Calculated to three decimals, the unemployment rate fell from 4.441% in February to 4.256% in March. The permanent job loser rate was 1.106% in March (February: 1.195%, January: 1.178%), and the temporary layoff rate was 0.516% (February: 0.543%, January: 0.492%).
The March non-farm payroll report has no significant impact on the Fed's monetary policy path. The view is maintained that the Fed is more likely to "look through" the oil price increases resulting from the current Middle East conflict, keeping interest rates unchanged rather than hastily raising them. After Kevin Warsh assumes the role of Chair, a single 25 basis point rate cut is possible in the second half of the year. Following the report's release, U.S. Treasury yields rose, but the report itself has little bearing on the Fed's policy trajectory. Based on Chair Powell's statements at the March 2026 FOMC press conference, he noted that rising energy prices have increased short-term inflation expectations but clearly distinguished the current situation from the 1970s stagflation environment, mentioning the traditional framework of "looking through" energy shocks provided inflation expectations remain anchored. Powell indicated the duration and intensity of the "war-oil prices-inflation" transmission channel are uncertain, and the macroeconomic impact remains to be seen. On March 30, Powell stated, "We feel like our policy's in a good place for us to wait and see how that turns out," reinforcing that the Fed is currently in a "wait-and-see" mode. Against a backdrop of stable U.S. inflation expectations and core inflation not being significantly impacted, the Fed is more likely to "look through" the oil price increases from the Middle East conflict, maintaining rates rather than hiking. A 25 basis point cut is possible in the second half under Chair Warsh.
Risk factors include a sharper-than-expected weakening of the U.S. labor market; unexpected developments in Middle East tensions; unexpected policies from the Trump administration; and a more hawkish-than-expected Federal Reserve.
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