The first wave of layoff data has demonstrated the lethality of DOGE. Are 500,000 American jobs in danger?

The Trump administration's rapid and drastic cuts in the size of the federal government are forcing economists to reassess their original forecasts of continued strong labor market growth through 2025... Tens of thousands of federal jobs have been eliminated since President Trump took office six weeks ago. andWall Street institutions such as ComericaBank, Evercore ISI and Barclays Bank have recently predicted that the total number of employees (including the chain reaction caused in the private sector) may exceed 500,000 by the end of this year.

The 500,000 figure will offset a quarter of total U.S. job growth in 2024. Although the February non-farm payrolls report to be released on Friday may only show a limited impact of layoffs, the actual impact is still expected to be reflected in the March and April data.

On Thursday, the number of layoffs at challenger companies announced by the US employment agency Challenger, Grey & Christmas is undoubtedly the latest indicator to reflect DOGE’s “destructive power” on the job market.

Data show that U.S. employers laid off a total of 172,017 people in February, an increase of 245% month-on-month, breaking the highest monthly number of layoffs recorded in July 2020 during the period of heightened uncertainty due to the COVID-19 epidemic. At the same time, this is also the highest number of layoffs in February since the global financial crisis in 2009.

Among them, about one-third of the layoffs in February came from federal government employees that DOGE had drastically reduced after U.S. President Trump took office, reaching 62,242 people, involving 17 federal government agencies. So far this year, the federal government has laid off 62,530 people, a 41,311% increase from the 151 layoffs in the same period as of February 2024.

Harry Holzer, a professor at Georgetown University and former chief economist at the Labor Department, said that if the federal employee layoff data is true and combined with the affected funded agencies and contractors, these numbers will be very large.

Private companies affected

It is worth mentioning that while the layoffs of federal employees are intensifying, private companies that cooperate with the government are also beginning to increase layoffs due to the cancellation of contracts by the federal government.

DAI Global LLC, a U.S. Agency for International Development contractor based in Bethesda, Maryland, in northwest Washington, said it has laid off more than 500 people because the federal government has defaulted on payments for completed projects. Consulting firm EnCompass LLC also laid off nearly 200 people as USAID froze funds.

Meanwhile, federal freezes on research, innovation and international development funding are changing hiring plans at universities and nonprofits. In areas with dense concentrations of federal employees (especially the capital Washington, DC), service industries such as restaurants and hotels are also suffering.

Pantheon macroeconomics analysts Samuel Thomas and Oliver Allen noted in a February 25 report that the private sector is expected to see a net loss of 100,000 jobs by October. The loss of revenue from federal layoffs and the uncertainty caused by the Department of Government Efficiency’s capricious policies will lead to a general contraction in consumption and a slowdown in hiring.

The impact may be long-term

In response, White House spokesman Harrison Fields stated in a statement that President Trump returned to Washington with a mandate from the American people to carry out unprecedented reforms to the bloated and inefficient bureaucracy. This is not easy in a broken system, but it is a long overdue task.

Currently, state and local governments - the main drivers of U.S. job growth over the past two years - are trying to absorb the unemployed. At Union Station in Washington, a billboard depicting the Statue of Liberty reads, "Fired from Government Effectiveness? We welcome you."

This is New York State’s “New York Needs You” recruiting program for 7,000 local government vacancies. New York Labor Commissioner Roberta Reardon said, "We need these outstanding talents."

Maryland Labor Secretary Portia Wu said that the state's reemployment program for unemployed people has seen a surge in applications, but local governments have limited ability to mitigate the impact. The Maryland governor’s office admitted that state government jobs cannot fully absorb federal unemployed workers. States may also eventually have to deal with federal funding cuts.

For now, while Friday's nonfarm payrolls report will likely contain early evidence of changes taking place in the labor market, the actual impact of DOGE on the job market may not yet be fully reflected in tonight's data because the Bureau of Labor Statistics collects data in the second week of February and government layoffs didn't begin until mid-February.

But reports in the coming months will provide a clearer picture of the impact of the layoff process that has begun. The White House requires federal agencies to submit "massive layoff plans" by March 13, and it is said that thousands of federal employees have accepted the government's "buyout" package.

For Wall Street, this all means higher unemployment and lower consumer spending, and could bring more downside risks to the U.S. economy. And as the trade war deepens and the threat of mass deportations looms, none of this is helping to support sentiment in financial markets.

Pantheon economists said: "We are not sure whether the actions taken by DOGE will seriously lead to economic growth, but a significant hit to the labor market may soon be reflected in the data."

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