The Timing of Federal Workforce Terminations and Their Impact on the February Jobs Report
The Bureau of Labor Statistics (BLS) is set to release the highly anticipated February jobs report on Friday. However, the federal workforce terminations led by the White House Domestic Policy Council (DPC) will not be fully reflected in this report. This is primarily due to the timing of the data collection and the implementation of the firings. Many of the terminations occurred after the BLS reference week for the household survey, which was conducted from February 9 to February 15. As a result, workers who were terminated after this period will still be counted as employed in the February report. For instance, the Department of Veterans Affairs dismissed over 1,000 employees on February 13 and another 1,000 on February 24, while the Internal Revenue Service (IRS) made its cuts on February 20. These terminations will likely not appear in the February jobs report but will instead be reflected in the March or April data.
The Federal Employment Cuts and Their Limited Reflection in the February Jobs Report
The BLS jobs report is based on two key surveys: the household survey and the business establishment survey. The household survey collects data on employment status during a specific reference week, while the business establishment survey looks at the pay period that includes the 12th of the month. Since many of the federal workforce cuts occurred after these reference periods, they will not be captured in the February report. For example, the Department of Education proposed a significant Reduction in Force (RIF) in advance of the March 13 deadline, but these changes will not be reflected until the March jobs report. Similarly, the IRS terminations on February 20 will not appear in the February data, as they fell outside the reference week.
Economists such as Daniel Zhao, lead economist at Glassdoor, and Julia Pollak, chief economist at ZipRecruiter, have pointed out that the timing of the terminations is a critical factor in why the February report will not show the full extent of the federal workforce cuts. Zhao noted that workers who were employed for at least part of the reference week will still be counted as employed, even if they were terminated shortly thereafter. Pollak added that as of mid-February, approximately 75,000 federal workers had resigned under the Trump Administration’s "deferred resignation" program, but it is unclear whether these individuals will still be counted as being on payroll in the February report.
The Limited Impact of Federal Workforce Cuts on Unemployment Numbers
The federal workforce cuts, while significant, are unlikely to have a substantial impact on the overall unemployment rate in the short term. This is because federal employment accounts for less than 2% of the total U.S. workforce, as noted by Gregory Daco, EY’s chief economist. Even if the Trump administration were to cut all federal workers who have been in their roles for under one year—a group estimated to be around 200,000—the impact on the broader labor market would be relatively small. Daco emphasized that the cuts will have a more noticeable effect on specific government functions and the workers directly affected, rather than causing a significant increase in the national unemployment rate.
However, the terminations will still have ripple effects on the economy. For example, IRS workers have expressed concerns that the loss of probationary employees could disrupt tax season, potentially delaying refunds and causing other inefficiencies. Additionally, the cuts to federal programs and budgets could lead to job losses in the private sector, particularly among contractors who rely on government funding. These indirect effects may take longer to materialize but could still contribute to a slowdown in economic activity in the coming months.
The Broader Context of Federal Workforce Reductions and Their Economic Implications
The federal workforce cuts are part of a broader effort by the Trump administration to reduce the size of the federal government. The Office of Management and Budget (OMB) and the Office of Personnel Management (OPM) have instructed federal agencies to identify non-critical positions and components for potential reduction or consolidation. This initiative is expected to result in further job losses throughout the year. While the immediate impact on employment numbers may be limited, the long-term consequences for government operations and the economy as a whole could be more significant.
David Kelly, chief global strategist at J.P. Morgan Asset Management, noted that federal government civilian employment has not been growing rapidly in recent years, with only a 1.6% increase in federal employment from January 2022 to January 2023. However, the recent terminations could still slow down many federal functions, ultimately affecting both private businesses and American citizens. For instance, the Department of Education has proposed a one-time offer to employees in advance of a significant RIF, which could lead to further attrition in the federal workforce.
The Economic Implications of Federal Workforce Cuts and Their Potential Impact on Future Jobs Reports
The federal workforce cuts are unlikely to have a significant impact on the jobs reports in the coming months, but they could contribute to a broader economic slowdown. The terminations could lead to a reduction in consumer spending, particularly among federal workers who are forced to cut back on discretionary expenses. Additionally, the loss of government jobs could lead to a decrease in demand for goods and services, potentially affecting private-sector employment.
Economists such as Daniel Zhao and Julia Pollak have cautioned that the full impact of the federal workforce cuts will not be fully apparent until the March or April jobs reports. By that time, the BLS will have had the opportunity to capture the effects of the terminations that occurred after the February reference week. However, even then, the impact on the overall labor market is expected to be relatively small compared to the broader economic trends.
In conclusion, while the February jobs report will not fully reflect the federal workforce terminations led by the White House DPC, the cuts could still have significant implications for government operations and the economy in the coming months. The timing of the terminations, the structure of the BLS surveys, and the relatively small share of federal employment in the overall workforce all contribute to the limited impact of these cuts on the February jobs report. However, the longer-term effects on federal functions, private-sector employment, and the broader economy bear close watching.
