April 3, 2026
On April 1 President Trump tried to calm the stock market which had fallen into “correction” mode earlier in the week when he said that the U.S. military mission in Iran was nearing completion. According to Trump the military has destroyed Iran’s navy and air force, and crippled its ballistic missile and nuclear program. He said that the war may continue for a few more weeks, but it would be short by almost any reasonable standard. For example, the Vietnam War lasted almost 20 years, the war against Iraq nine years, and Afghanistan 20 years. That part of the speech was encouraging. The end of the war was seemingly in sight. But moments later he said that he would hit them “extremely hard” over the next two to three weeks. So was this good news? Or bad news? It depends.
Stock traders focused on the good part. After falling into “correction mode earlier in the week, the S&P 500 index rebounded vigorously and turned a cumulative 10% decline from its record level at the end of January to a drop of just 5.5%. If the war ends within the next month or so and oil prices begin to decline the damage to the U.S. economy should be manageable.
But is that sanguine outlook warranted? Trump said he plans to hit Iran “extremely hard” over the next two or three weeks. What does that mean? Ground forces have been amassed in the area but have not yet been committed to any sort of an invasion. Will that happen? If the U.S. attempts to open the Strait of Hormuz by force, will it be able to withdraw those troops in a timely manner? Nobody knows. But in that event the supply of oil will probably be further constrained and prices will climb. Unlike the stock market, oil traders were less convinced that the end of the war is near. West Texas Intermediate oil has climbed to $110 per barrel.
Pump prices for gasoline have reached $4.00 per gallon versus $2.80 at the end of last year.
The future remains uncertain and depends largely upon the outcome of the war. The good news is that the economy continues to hang in there. Payroll employment jumped by 178 thousand in March but that outsized increase grossly overstates the strength in the labor market because employment fell by 133 thousand in February. Bad weather almost certainly contributed to the February drop and led to the subsequent March rebound as more normal weather returned. In the past three months employment has risen on average 68 thousand per month — growing, but slowly.
The other reality is that the economy no longer needs to produce employment gains of 100-200 thousand per month. After rising by about 100 thousand per month in 2024, the labor force has not grown at all since that time. Initially it declined as illegal foreign workers were deported, but that has changed in recent months as the pace of deportation has slowed. The slowdown in recent months is attributable to U.S.-born workers as younger workers seem to be staying in school a bit longer and some baby boomers are beginning to retire. Thus, the slower growth in employment seems to reflect a reduction in both the demand for and the supply of workers.
Given all of the above, the unemployment rate has been essentially unchanged for the past two years. At 4.3% it is basically in line with its so-called “full employment’ level which is believed to be 4.2%. At that level everybody who wants a job has one.
While the future course of the economy, the inflation rate, and possible Fed action remain uncertain, what Is clear is that thus far consumers and business leaders have shrugged off an avalanche of headwinds from the imposition of tariffs, layoffs of federal government workers, the government’s month-long shutdown, deportation of illegal (and some legal) immigrants, miserable winter weather, and now the war in Iran. GDP growth continues to hang in there at about the 2.0% mark. That is impressive.
Stephen Slifer
NumberNomics
Charleston, S.C.
Hey Stephen! Do you mind sharing your confidence level in recent Government stat/metric reports? Is political influence at play?
Former SecState Colin Powell said it best regarding war and in this case the Straits of Hormuz “You break it, you own it”- the Pottery Barn Rule. The “now what” is on everyone’s mind in the foreign, defense and international relations arenas. Many including myself don’t see the Administration being clear on that and i suggest markets respond accordingly.
One opinion is that the so-called Middle Powers of Canada and European NATO/EU may use this to shape next steps and to “edge out” some of the US influence with the six Gulf Cooperation Council countries depend on the Strait for oil exports and ALL their imports by entering separate negotiations with Iran.
That could be interesting 🤔
Hi Patrick,
Sorry I missed this from you. I still have confidence in all of the government-produced statistics, but I am concerned about the role of politics going forward. My primary concern came from the Fed’s lack of action in 2022-2023 regarding the rising inflation rate and its insistence that it would be temporary. Private sector economists concluded long before the Fed that it was not going to be temporary. So did the Fed’s tardiness in raising reties stem from a lousy forecast from the Board’s macro model? Or did politics enter the equation? Perhaps my decade spent at the Board early in my career influences my opinion, but I give the FOMC the benefit of the doubt and concluded that it somehow saw things differently from the rest of us. But I will wonder if somewhere down deep politics did not enter the equation.
But that is now ancient history. Since the government shutdown late last year the data flow and initial quality of the data came into question. The shutdown distorted virtually every economic metric. To what extent were the data we got distorted? Could economists discern any changes in trend from what we saw? Given the government layoffs was the quality of the data we were seeing less reliable? Given intense pressure from Trump to produce statistics that were consistent with his view of the world, did data analysts at any of these agencies bias their data to fit with his scenario? All good questions. My short answer is no, they did not.
There is no question that the shutdown distorted everything and interrupted the normal flow of data so it was hard to interpret. But one has to remember is that it is not just government agencies that produce data. We get data from all sorts of places. The various Federal Reserve Banks. The National Association of Realtors. Car dealerships. The Homebuilder’s Association. The S&P with its Case Shiller Report. The ISM Report. Even data from the Labor Department on initial unemployment claims must at least loosely square with payroll employment and the unemployment rate. With data coming from so many different sources it would be extremely difficult to tell a convincing alternative story. In short the data have been wildly volatile and the delayed flow of data following the shutdown made it difficult to interpret. But lousy winter weather contributed to the volatility. Now the war is becoming a factor. Interpreting economic data these days is extremely challenging, but I do not think it is the lack of confidence in government produced statistics that is the source of the problem.
Hi Dean,
I cannot begin to understand the politics behind the war and what discussions are taking place behind the scenes. And how can policy change from day to day? We are all left guessing. And that probably includes many members of the president’s inner circle. But then again, these discussions should take place in private. In the end, economists like me and investors have to make their own conclusions about where things are headed. And since none of us know anything that creates a lot of volatility which is always dangerous. In the end, I think all players — the U.S., Iran, and Israel — are right now more interested in finding a solution than fighting. But what do I know? God luck to all of us!
Best.