The U.S. economy faces a critical test Friday when the Bureau of Labor Statistics releases the March jobs report, with economists bracing for signs of economic damage from the Iran war that has sent oil prices soaring and triggered warnings of a potential recession.

The U.S. economy is projected to show job gains of 59,000 for the month, an anemic rate by the standards of previous years this decade but enough to keep the unemployment rate at 4.4%. The modest expectations reflect growing concerns that the monthlong conflict in the Middle East is beginning to weigh on hiring decisions as businesses confront higher energy costs and mounting uncertainty.

The March jobs report, due out Friday morning, could bring a much-needed reality check after two months of wild swings in the US labor market. February’s surprise loss of 92,000 jobs, the first decline since the pandemic, has heightened focus on whether the economy can withstand the dual pressures of an already-softening labor market and the new energy shock from the war.

The March employment report will be the first important release of data for the period after the start of the Iran war.

The job market was already looking weak before the start of the war, with the February jobs report showing a loss of 92,000 jobs.

The conflict, which began when the U.S. and Israel launched strikes against Iran on February 28, has created what the International Energy Agency calls “the largest supply disruption in the history of the global oil market” after Iran effectively closed the Strait of Hormuz to commercial shipping.

Brent crude futures prices rose 36% from Feb. 27 — the last day of trading before the war started — through March 27, when they traded above $113 a barrel. Gas prices have surged more than $1 per gallon to cross $4 nationally for the first time since 2022, dealing a direct blow to household budgets.

Wall Street Raises Recession Fears

The energy shock has prompted major Wall Street firms to sharply increase their recession forecasts. Goldman Sachs Group Inc. says the risk of a downturn over the next 12 months has risen to 30% as a result of the surge in oil prices, and predicts the jobless rate will climb to 4.6% by the end of 2026 from 4.4% in February.

Economists with consulting and research firm EY-Parthenon see a 40% chance of a severe downturn over the 12 months, up from 35% before the U.S. and Israel attacked Iran on Feb. 28, citing persistent inflation due to the conflict’s disruption of global oil supply.

“The combination of tighter financial conditions, more uncertainty and higher inflation is going to erode growth,” EY-Parthenon chief economist Gregory Daco told CBS News.

“We’ve curbed our growth forecast down and increased the odds of recession on the basis that if this conflict becomes more severe or prolonged, then you would see a more visible risk of a downturn in the economy.”

Mark Zandi, chief economist at Moody’s Analytics, warned that “If oil prices stay kind of where they are through Memorial Day, certainly through the end of the second quarter, that’ll push us into recession.”

Fed’s Balancing Act

The economic turbulence has complicated the Federal Reserve’s policy outlook. At its March 18 meeting, the Federal Open Market Committee voted 11-1 to keep the benchmark federal funds rate anchored in a range between 3.5%-3.75% , citing uncertainty about the war’s economic impact.

During his news conference, Powell said it was “too soon to know” the impact of the war.

“Near term measures of inflation expectations have risen in recent weeks, likely reflecting the substantial rise in oil prices caused by the supply disruptions in the Middle East,” he said.

The Fed raised its inflation forecast for 2026, with officials now expecting the personal consumption expenditures price index to reflect a 2.7% inflation rate, both on headline and core.

For investors, the practical takeaway is simple: Rate cuts are still possible in 2026, but they no longer look automatic.

Labor Market Already Fragile

Even before the war, the U.S. labor market showed signs of strain. The U.S. economy created just 116,000 jobs for all of 2025 and lost 92,000 in February.

The economy has relied heavily on health care for job growth. In fact, without the sector, over the past year there would have been a net loss of more than half a million jobs.

The first quarter of 2026 has seen the fewest layoff announcements since 2022, new data from Challenger, Gray & Christmas showed. However, Challenger’s latest job cuts report released Thursday not only showed that announced layoffs increased in March, but also highlighted the growing role