The latest U.S. jobs report delivered a headline surprise, but some economists say the strength is overstated.

March payrolls rose by 178,000, more than double expectations, yet much of that gain came from temporary factors.

The unemployment rate fell. The White House declared vindication.

Bob Schwartz, senior economist at Oxford Economics, said the data tells a very different story beneath the headlines.

‘Looks Stronger Than It Actually Is’

"March’s headline payroll increase of 178 thousand -more than double expectations -looks stronger than it actually is," Schwartz said.

Temporary distortions drove much of the gain.

"The return of striking nurses inflated health sector gains and improved weather padded leisure and hospitality jobs," he said.

Healthcare added 90,000 jobs in March, which is more than half of the total payroll growth. Roughly 30,000 of those came from workers returning after a strike.

On the wage front, average hourly earnings rose just 0.2% in March. The year-over-year rate slipped from 3.7% to 3.5% — the slowest annual gain since May 2021. For lower-paid workers, it was thinner still: 3.4%.

"Under the hood, the labor market is more fragile than the blockbuster headlines suggest," Schwartz said.

The Unemployment Rate Drop Isn't Good News

At first glance, a drop from 4.4% to 4.3% looks like progress.

It isn't.

"What's more, the drop in unemployment from 4.4 to 4.3 percent was driven by a shrinking labor force rather than genuine job creation," Schwartz said.

That means fewer Americans are working or looking for work.

“Except for the pandemic blip, the labor force in March fell from the year-earlier level for the first time since 2013, reflecting the immigration crackdown and an aging population,” Schwartz added.

The employed headcount has fallen for three straight months.

Inflation Is Rising — And Workers Feel It

At the same time, inflation is moving in the opposite direction. Gas prices have climbed above $4 per gallon.

The math for a working household is straightforward and brutal.

A family filling a 15-gallon tank twice a week is now spending roughly $120 more per month on gasoline alone than they were 30 days ago. That is more than $1,400 a year — before factoring in the pass-through to groceries, shipping costs, and utilities that move with energy prices.

"The broader consumer picture is similarly strained. Wage growth is slowing, inflation is accelerating, and worker bargaining power has eroded markedly since the spring of 2025," Schwartz said.

Wage growth at 3.5% is already running below the pace needed to offset that hit for most households. For lower-income workers — who spend a disproportionate share of earnings on fuel and essential goods — it is not close.

The signal in the quit data confirms it. The voluntary quit rate has matched the lowest level of this economic expansion. The ratio of quits to unemployed workers — except for the pandemic plunge — is the lowest in more than a decade.

Workers who do not believe they can find something better do not quit. That shift in bargaining power from labor to employers, which Oxford Economics traces to the spring of 2025, has now become entrenched.

The Fed’s Impossible Position

Inflation is accelerating. The Fed’s tools cannot stop it.

That is not a criticism of the Federal Reserve — it is a description of what supply-side shocks do. The Fed cannot reopen the Strait of Hormuz. It cannot bring crude back below $80.

What it can do is raise rates to slow demand, but slowing demand in an economy already showing labor force contraction, falling consumer confidence, and a war-driven spending shock carries its own risks.

Oxford Economics expects the Fed to take a different path: look past the inflation spike and return to rate cuts in the second half of the year, once demand destruction becomes the more pressing concern.

February retail sales — the last clean pre-war read — showed a solid 0.6% gain. That number predates $4 gas and the psychological toll of an active conflict on consumer behavior.

March and April data will be the first honest look at what households are actually doing at the register.

"The Fed, limited in its ability to address supply-side inflation shocks, will likely look past rising prices and pivot back toward rate cuts in the second half of the year as demand destruction becomes the more pressing concern," Schwartz said.

The U.S. economy now faces a dangerous mix. Slowing wage growth, rising inflation and weakening labor supply.

The stagflation scenario — rising prices and slowing growth simultaneously — is no longer a tail risk. It is the base case if the conflict extends beyond current assumptions.

A longer war means more inflation and more demand destruction at the same time, compressing the Fed’s options and raising recession odds even as inflation prints run hot.

Image created using artificial intelligence via ChatGPT