Government Efficiency Drive Begins to Show Impact in Labor Market Data
The US government's efficiency drive, led by Elon Musk's Department of Government Efficiency (DOGE), has started to show its impact on the labor market. According to data released by the Bureau of Labor Statistics (BLS) on Friday, federal government employment fell by 10,000 in February, marking a decline from the 9,000 federal jobs added last month. This decrease is part of a broader trend, as government jobs contributed just 11,000 to the total nonfarm payroll gains of 151,000 seen in February.
The decline in federal hiring is significant, especially when compared to previous months. In January, the upwardly revised figure showed 44,000 government jobs added, while last year saw an average monthly gain of around 38,000. The slowdown in federal hiring is further reflected in other labor market measures, which indicate a reduction in job openings and an increase in layoffs.
On Thursday, Challenger, Gray & Christmasshowed that job cuts soared to 172,017 in February, the highest monthly level since July 2020. The firm specifically cited cuts from DOGE as a contributing factor. This trend is likely to continue, with some economists estimating that DOGE-related layoffs could eventually total 1 million.
Federal Hiring Freeze and Buyout Offers
The federal hiring freeze, put in place on January 20, has contributed to the decline in government employment. Additionally, about 75,000 federal workers took a buyout offer from the Trump administration, which means they will collect a paycheck through early fall and be considered "employed" for reporting purposes until that time. This development may have affected the BLS's data on federal hiring.
Economists believe that DOGE-related job cuts and layoffs related to canceled government contracts won't fully show up in employment numbers until later this year. However, some experts are concerned about the impact of these developments on the labor market.
Labor Market Analysis
RSM chief economist Joe Brusuelas told Yahoo Finance that he's not worried about the labor market's future once DOGE-related layoffs are fully priced into the data. He believes that "we have a very tight labor market," and "labor imported from the external tech sector has slowed basically to zero." This suggests that while federal hiring slows or decreases, it won't significantly affect unemployment rates.
In a speech on Friday, Trump emphasized his commitment to creating high-paying manufacturing jobs. He stated, "We had too many people in government. You can't just do that. This is for 40 years. This isn't just now. This built up and got worse and worse, and they just hire more and more people." His administration's focus on manufacturing jobs may help offset the impact of DOGE-related layoffs.
Market Reactions
Others on Wall Street have expressed concerns about DOGE's potential impact on economic growth. Morgan Stanley analyst Mike Wilson wrote that "DOGE is off to an aggressive start, and this is also likely a headwind to growth initially, as federal spending and headcount are reduced." Torsten Sløk, chief economist at Apollo Global Management, estimates that DOGE-related layoffs could total 1 million and may push jobless claims higher over the coming weeks.
The consequences of such an increase in layoffs would be significant, potentially affecting interest rates, equities, and credit markets. As a result, some experts believe that near-term downside risks to the economy and markets are growing.
Implications for Investors
Investors should keep a close eye on labor market data and the impact of DOGE-related layoffs on unemployment rates. The potential consequences of an increase in jobless claims could affect interest rates, equities, and credit markets. As such, it's essential to stay informed about economic news and indicators to make informed investment decisions.
Sources
- Bureau of Labor Statistics (BLS)
- Challenger, Gray & Christmass
- RSM chief economist Joe Brusuelas
- Torsten Sløk, chief economist at Apollo Global Management
- Morgan Stanley analyst Mike Wilson
Author Bio
Alexandra Canalis is a Senior Reporter at Yahoo Finance. She has covered various topics, including economic news and indicators that inform investing decisions.