Impact Of Federal Employment Cuts On The Labor Market

Summary

• Policies from the Trump administration, which have called for a broad reduction in federal government workers and spending, could negatively impact the labor market.
• This is likely to push unemployment higher, though it probably won’t be felt until the latter part of the year, buying time for the Fed to assess incoming data before considering additional rate cuts.
• Direct federal employment accounts for less than 2% of total nonfarm payrolls, but the U.S. government indirectly employs approximately 7.5 million workers through contract or grant spending.

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By Seema Shah, Chief Global Strategist

Policies from the Trump administration, which have called for a broad reduction in federal government workers and spending, could negatively impact the labor market, especially when accounting for contract and grant-funded workers.