How DOGE cuts might show up in the data

Axios

01-03-2025

Efforts by the Trump administration and Elon Musk's Department of Government Efficiency to cut vast numbers of federal jobs will surely show up in national economic data — but don't expect the impact to be massive, or immediate.
Why it matters: In a $30 trillion economy with 159 million jobs, it takes a lot to meaningfully move the dial. The types of cuts to federal employment and government contracts that have been enacted thus far by the DOGE crew are comparatively small scale.
That could change if President Trump and congressional Republicans enact a bigger agenda of austerity.
State of play: The administration is seeking to lay off probationary federal employees (those who've been on the job for less than a year), of which there are about 220,000, assuming they overcome pending legal challenges.
Another 77,000 federal workers have accepted DOGE's buyout, which keeps them on the payroll through September.
An open question is how many of those workers find new jobs, how many experience prolonged unemployment, and how many exit the workforce entirely.
By the numbers: SGH Macro Advisors estimates that a third of laid-off workers find a new job within three weeks, 50%-55% remain unemployed for a longer period of time and around 15% leave the workforce.
That's based on the Labor Department's Displaced Worker Survey, which tracks what happens to laid-off workers.
Using that arithmetic, it implies 220,000 federal layoffs would only raise the national unemployment rate by 0.07%, not the kind of move that makes economists — or central bankers — panic.
Yes, but: With so many federal workers entering the job market at once, it could prove a more challenging job market for displaced federal workers than the historical experience would suggest.
Of note: February jobs data due out Friday is unlikely to show much impact. The "reference week" for that payrolls report is the week that included Feb. 12, when the cutbacks were just getting started.
If you squint, you can start to see evidence of cutbacks in the weekly initial jobless claims data.
Over the last two weeks, there have been an average of 1,654 new claims for unemployment benefits in the District of Columbia, which is about three times the 2024 average.
There were 613 claims to the unemployment insurance program for federal workers in the week ended Feb. 8, up from 382 a year ago. That number is released with a two-week delay and will presumably rise further.
Reality check: The potential labor market effects are larger if the Trump administration and Congress enact major reductions to federal spending — in the hundreds of billions, not the comparatively small programs DOGE has targeted so far.
House leadership is planning a vote on a path forward for a tax bill that includes $2 trillion in spending cuts over the next decade, concentrated in Medicaid, food assistance and clean energy subsidies.
The bottom line: "The Federal Reserve is unlikely to react to a 0.1% rise in unemployment, particularly one that is easily identifiable and more of a one-off change in policy," wrote Tim Duy and Josh Lehner, of SGH Macro, in a note.
"However, any broader impact hinges on federal spending," they added.