U.S. Adds 178,000 Jobs in March, Well Above Forecasts; Services PMI Falls Below 50 for First Time Since 2023
The U.S. labor market added 178,000 jobs in March, significantly exceeding consensus expectations, even as the country’s services sector unexpectedly contracted for the first time since January 2023. The conflicting data has complicated the economic outlook as Federal Reserve officials weigh their next monetary policy steps.
UNITED STATES,ECONOMY
Global N Press
4/7/20262 min read
WASHINGTON, April 3, 2026 — The U.S. labor market added 178,000 jobs in March, significantly exceeding consensus expectations, even as the country’s services sector unexpectedly contracted for the first time since January 2023. The conflicting data has complicated the economic outlook as Federal Reserve officials weigh their next monetary policy steps.
Job Growth Beats Expectations
Data from the Bureau of Labor Statistics released on April 3, 2026, showed the U.S. labor market delivered a stronger-than-expected performance in March. Nonfarm payrolls rose by 178,000, substantially above the median forecast of 65,000 jobs in a Bloomberg survey of economists, marking the largest monthly gain since late 2024. The unemployment rate edged lower to 4.3% from 4.4% in February, pointing to continued labor market resilience despite headwinds from trade tensions and elevated energy prices.
Services Sector Contracts Unexpectedly
A notable divergence emerged in the services sector, which accounts for roughly 70% of U.S. economic output. S&P Global reported its Services Purchasing Managers’ Index (PMI) fell to 49.8 in March from 51.7 in February, moving into contraction territory (below 50) for the first time since January 2023. The final reading also came below the flash estimate of 51.1.
Survey respondents attributed softer activity to rising energy costs, fueled in part by ongoing tensions in the Middle East. Average retail gasoline prices nationwide have climbed above $4 per gallon, pushing input cost inflation to its highest level this year. Services sector employment also edged slightly lower in March, representing the first decline since December 2024.
Growth Forecasts Cut Amid Diverging Signals
The mixed economic signals have heightened uncertainty over the U.S. growth trajectory. In early April, the Atlanta Fed’s GDPNow model as of April 2 projected first-quarter GDP growth at around 1.6%, down from an earlier estimate of 3.1% and below the Federal Reserve’s estimated longer-run sustainable trend of 1.8%.
Analysts noted that while the labor market remains solid, the contraction in services — long viewed as a stable pillar of the U.S. economy — suggests the combined pressure from trade tariffs and higher energy costs is weighing on business activity more than previously anticipated.
Market Reaction and Fed Rate Outlook
The robust jobs figures reduced investor expectations for near-term interest rate cuts. The CME FedWatch Tool indicated a 99.5% probability that the Federal Reserve will leave its benchmark federal funds rate unchanged at its May 6-7 meeting.
The ICE U.S. Dollar Index (DXY) strengthened following the data release, while equity index futures — including those for the S&P 500 and Nasdaq 100 — traded lower as investors revised their monetary policy outlooks.
IMF Warns of Limited Scope for Rate Cuts
In its annual Article IV review of the U.S. economy published on April 1, 2026, the International Monetary Fund projected U.S. GDP growth would rebound to 2.4% in 2026. However, the fund warned that risks from trade tariffs and energy prices may slow the return of inflation to the Fed’s 2% target.
The IMF emphasized that the Fed has “very limited room” to cut interest rates in 2026, adding to the challenge for policymakers navigating conflicting signals from the labor market and the broader economy.
