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.