The expansion of employment in the U.S. last year was sluggish, yet flickers of stabilization, if not outright recovery, had begun to emerge.
Now, a conflict thousands of miles away is not only interrupting this nascent progress but also threatens to further derail the labor market.
It has been four weeks since the U.S. and Israel launched strikes against Iran. The economic fallout from the escalating and perilous Middle East conflict has been swift: a vital shipping route closure triggered a sharp rise in oil prices, complicated supply chain operations, and pushed up gasoline costs. Inflationary anxieties have intensified, as has uncertainty. This is a dynamic that has been stifling the job market.
“If the Strait of Hormuz remains closed and the price of oil stays above $100 until April, then in my view, that is a game-changer,” stated Chief Economist Heather Long. “Then you are talking about a wholly different economy, and then layoffs returning.”
The slow, languid, sluggish momentum of the labor market—characterized by muted hiring and low labor activity—is expected to persist… Thus far.
“Uncertainty is causing delays, not cancellations, in hiring plans,” Gregory Daco, Chief Economist at EY-Parthenon, told CNN last week.
Daco currently anticipates “jobless” growth, with employment expanding by about 20,000 positions monthly through the first half of the year, and the unemployment rate (currently 4.4%) easing by year’s end.
“With a recession probability hovering around 40%, there is a risk that a prolonged hiring pause eventually leads to a more noticeable softening,” he wrote. “For now, it’s still cooling, not cracking. But if uncertainty resurges, those cracks could appear by late spring.”
“Stable, Yet Stagnant”
Last year already ranked as one of the weakest for the U.S. labor market in recent decades, excluding recessionary periods.
According to the latest official estimates, the economy added a mere 116,000 jobs in 2025. For context, in 2024, the economy was adding roughly 121,000 jobs per month, aligning with historical averages.
However, there had been optimism that job growth this year would be less anemic.
Inflation was anticipated to recede, three interest rate cuts in late 2025 were permeating the broader economy, and a new tax law was supposed to fuel both consumer spending and business investment.
Furthermore, uncertainty—the biggest domino of all—could have waned as businesses gained more clarity on the economy, borrowing costs, tariffs, and other federal policies, technological advancements, and geopolitical developments.
The new Middle East conflict, conversely, has amplified this uncertainty.
“We haven’t seen anything in our data yet that would suggest the U.S. labor market is either surging or sharply deteriorating,” Laura Ulbrich, Director of Economic Research at the Indeed Hiring Lab, commented in an interview. “It still looks quite stable, but everything is paused.”
Consumers, the Key Economic Engine, Face Rising Costs
Oil prices spiked considerably since the war began, rising about $30 per barrel (having reached $50 at one point). Every $10 increase from these levels carries significant economic weight—ranging from reduced GDP growth to fueling inflation, economists note.
Some consequences were immediate for American consumers. Average U.S. gas prices increased by \$1 to \$3.98 per gallon compared to pre-war averages, according to AAA data. Higher energy expenses (gas, heating, utilities) could adversely impact annual household income by over \$1,350.
These elevated costs are not expected to stop there. The OECD forecasted on Thursday that U.S. inflation could climb to 4.2% this year (it stood at 2.4% in February by the CPI measure).
Economists are closely monitoring how well the American consumer can handle not just the surge in gasoline costs, but also rising oil prices, which can affect the price of goods and services across the economy.
Consumer spending accounts for two-thirds of economic activity, so if this level dips, it could spell trouble for the U.S. job market.
Data from Navy Federal Credit Union on credit and debit card spending suggests more dollars are going toward energy and gas, but consumers also appear to be “pre-loading” certain purchases—similar to last year in anticipation of higher tariffs, Long pointed out.
“People might foresee that airfares are rising and summer vacation plans might become slightly pricier, so they are trying to book tickets now,” she said.
Aiding some consumers is a slightly larger financial cushion, she noted, highlighting that tax refunds are averaging 10% higher than last year. This continued spending flow might hold off potential layoffs, but this dynamic cannot continue indefinitely, Long observed.
“But consumers are holding on right now,” she added.
New labor market data is due out this week—including the latest figures on job turnover, private sector hiring, layoff announcements, and the crucial monthly employment report.
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