The Trump administration’s rapid efforts to dramatically shrink the size of federal government have economists rethinking forecasts for another solid year of labor market expansion in 2025.

Already, Bloomberg Economics estimates tens of thousands of federal jobs have been cut in the six weeks since President Donald Trump took office. Comerica Bank, Evercore ISI and Barclays are among firms who say total job losses could top half a million by the end of the year.

That number, which includes knock-on effects in the private sector, would effectively reverse a quarter of all job growth in 2024. The government’s monthly report on US employment for February due Friday may show limited signs of the damage, though the impact is set to become more apparent in March and April.

Government Sector Has Supported US Job Growth

Federal government has added jobs in all but two months since 2023

Source: Bureau of Labor Statistics

“If these numbers on federal workers turn out to be accurate, and if you include the grantees and the contracts, these numbers are going to be significant,” said Harry Holzer, a Georgetown University professor and former Labor Department chief economist.

Bloomberg Intelligence

DOGE Job Cuts, Tariffs Latest

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A report published Thursday by the outplacement firm Challenger, Gray & Christmas showed job cuts announced by employers rose last month to the highest level since 2020, and weekly data on filings for unemployment insurance showed a surge in claims from laid-off federal workers.

Private-sector firms who do business with the government are also beginning to slash payrolls as the Department of Government Efficiency — spearheaded by Elon Musk — pushes agencies to cancel contracts.

Just northwest of Washington in Bethesda, Maryland, a contractor for the US Agency for International Development called DAI Global LLC said it laid off more than 500 employees after the federal government failed to pay for work that had already been completed. EnCompass LLC, a consulting firm nearby in Silver Spring, also said it dismissed nearly 200 people as a result of the USAID funding freeze.

Meanwhile moves to halt federal contributions to scientific innovation and international development are changing hiring plans at universities and nonprofits, while service providers like restaurants and hotels in areas with a big federal worker presence — including the nation’s capital — will probably take a hit.

“President Trump returned to Washington with a mandate from the American people to bring about unprecedented change in our federal government to uproot waste, fraud and abuse. This isn’t easy to do in a broken system entrenched in bureaucracy and bloat, but it’s a task long overdue,” White House spokesperson Harrison Fields said in a statement.

In all, Samuel Tombs and Oliver Allen at Pantheon Macroeconomics said in a Feb. 25 report that they expect a net drag on private-sector employment of 100,000 jobs by October as “lost income due to direct federal job cuts and the general uncertainty prompted by DOGE’s erratic approach likely will prompt a pullback in spending and hiring more generally.”

‘You’re Hired’

State and local governments, a major driver of overall US job growth over the past two years, are hoping to recruit some of the newly unemployed. At Union Station in Washington, DC — the main land gateway to the nation’s capital — an ad featuring the Statue of Liberty tells workers, “DOGE said you’re fired? We say: You’re hired.”

It’s part of the “New York Wants You” campaign the state launched to lure applications for some of its 7,000 open government jobs. “We’d love to have them come to New York state. They’re dedicated, and we need good workers,” New York Labor Commissioner Roberta Reardon said in an interview.

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Maryland Labor Secretary Portia Wu says her state is seeing a surge in interest in programs it set up to help laid-off workers find new positions. But the ability of state and local governments to cushion the blow is limited. As the Maryland governor’s office points out, “there are not enough state jobs for every federal worker.” And states themselves may also ultimately have to deal with reductions in federal funding.

While Friday’s jobs report will probably contain early evidence of the unfolding fallout in the labor market, the DOGE impact on the numbers will be muted because the Bureau of Labor Statistics performed its data collection in the second week of February, and cuts didn’t pick up steam until mid-month.

Reports over the next few months will provide a better illustration of what’s already been set in motion. The White House ordered federal agencies to submit plans for “large-scale reductions in force” by March 13, and thousands of federal employees are said to have taken the government’s offer to resign and still get paid through September.