By Karishma Vanjani

For weeks now, job cuts have ripped through one federal agency after another, as managers complied with directives from the Department of Government Efficiency. And despite mounting litigation, the culling of the government in terms of funding and people seems likely to continue.

This would appear to be a significant economic shock, but so far its longer-term ramifications are unclear. While markets have reacted negatively to policies like tariffs, investors haven't seemed concerned about shrinking the federal government; in the past week alone, the S&P 500 has notched two highs.

Eventually, of course, the federal firings will roll into employment numbers. As Moody's Analytics Senior Director Dante DeAntonio says, "It doesn't look like there will be a huge shock to the system, at least in the next couple of weeks."

The federal government employs three million workers, about 1.9% of all U.S. payrolls, excluding the military. By comparison, Walmart, the largest private employer, employs 2.1 million people. Piper Sandler says 29,000 federal workers were terminated as of Friday.

These figures don't account for knock-on effects from job losses at firms contracting with the government, the 10,000 put on administrative leave at USAID, or the 75,000 who accepted buyouts and agreed to stop work by Sept. 30.

The initial impact of the firings will appear in a line item called the Unemployment Compensation Program for Federal Employees, released every Thursday with unemployment claims. It accounts for federal workers who claim unemployment and can prove they lost jobs through no fault of their own. The February report covers weekly and bi-weekly payrolls including Feb. 12, so it won't capture the bulk of the layoffs. The March report, out April 4, should show the hit.

So far, economists haven't been raising red flags. "Federal job cuts will likely not make a major difference for the economy," says Stephen Stanley, an economist at Santander Bank. "Maybe federal government payrolls are 5,000 to 10,000 weaker per month than would otherwise have been the case for a while, but a lot of those people should quickly find work elsewhere."

Like some other economists, Piper Sandler's Nancy Lazar sees "a small impact on the economy," but points to the benefits of "labor shifting to more-productive private endeavors." When 146,000 federal jobs were lost during 2011-14 budget cuts, the private sector added seven million jobs. It helps that unemployment today is low.

Of course, this argument isn't just about the jobless number. Some government programs are just not viable propositions for companies. Long-term programs like scientific research, forestry services, and foreign aid may never be big profit makers. Government investment is aimed at longer-term economic goals or public benefits that companies can't -- or won't -- provide.

Take Emma Schultz, a 38-year-old forestry technician and mother of two who was recently laid off from the U.S. Forest Service along with thousands of her colleagues. Her job in Colorado was to sell off timber to mitigate wildfire risk and maintain healthy forests. The effect of cutbacks on any particular ranger district is unclear, but it may mean bathrooms don't get cleaned or hazardous trees aren't cleared, she says.

As Peter Cappelli, director of the Human Resource Center at the University of Pennsylvania's Wharton School, says, "You don't have to throw a very big wrench into things [to] start to get real problems in terms of lending, how long it takes mortgages to clear and be processed, and tax refunds to come out." That's where the real damage may occur.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com

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February 21, 2025 17:03 ET (22:03 GMT)

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