WSJ Your Money Briefing - How Mass Federal Layoffs Could Impact the Economy

Episode Date: February 26, 2025

Layoffs and hiring freezes ordered by the Trump administration have hit thousands of federal workers so far with more expected to come. Wall Street Journal reporter Justin Lahart joins host Ariana Aspuru to discuss the impact of these labor reductions and how it could spill over into the broader economy.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

With record levels of dry powder available for investment, find out what's in store for private markets in 2025 and beyond. Listen to Crafting Capital in partnership with UBS at partners.wsj.com slash UBS, Spotify and Apple podcasts. Here's your money briefing for Wednesday, February 26. I'm Mariana Aspuru for The Wall Street Journal. I'm Mariana Aspuru for The Wall Street Journal. Recent layoffs and hiring freezes from the Trump administration have left Americans employed by the federal government on shaky ground. If you are a federal worker and you lose your job, you're going to spend less money until you're able to find new employment. If you're a federal worker and you don't lose your job but you've seen these mass

layoffs, maybe you're not going to think about buying that new washing machine. Maybe you're going to be a little bit more conservative with your cash. That could have an effect on businesses. We'll talk to Wall Street Journal reporter Justin Layhart about what it could mean for the economy if hundreds of thousands of those jobs go away. That's after the break. Americans love using their credit cards, the most secure and hassle-free way to pay. But DC politicians want to change that with the Durbin Marshall Credit Card Bill.

This bill lets corporate megastores pick how your credit card is processed, allowing them to use untested payment networks that jeopardize your data security and rewards. Corporate megastores will make more money, and you pay the price. Tell Congress to guard your card because Americans lose when politicians choose. Learn more at guardyourcard.com. America's biggest employer, the federal government, is conducting mass layoffs. And how it will impact our economy is still unclear. Wall Street Journal reporter Justin Layhart joins me.

Justin, let's take a step back. What started these job cuts? Well, the first thing is on Inauguration Day, President Trump instituted a hiring freeze. Shortly after that, DOJ starts with a mandate to go in and reduce the federal workforce. And now there's been something called deferred resignation on certain federal employees. Tell me where that's left some people. There was an offer for deferred resignation. The idea was that you'll continue to get paid through September and not work. And as far as we can tell,

about 75,000 people accepted that. So those folks are still on the payroll. They will be on the payroll through September, so they won't show up as people without jobs, but they aren't working. When we're talking about these federal layoffs, can you throw out some numbers, just so we know the scope of how many people are involved and how many people could be involved

in the coming months? We really don't have a great handle on this, to be honest. Some agencies have had announcements, some haven't. It's unclear how good the numbers are. So far, and this is really through last Friday, it was somewhere in the neighborhood of 30,000 people that were laid off. As far as folks could tell, there could be more. It seems almost certain that there is more coming. In addition, the hiring freeze has an impact. Just like any other employer, there's a lot of churn in the federal government. People are

retiring, people are quitting, taking new jobs and so forth. The hiring freeze alone over the course of the year, that would reduce employment by about 200,000. And that's from a federal workforce of about 2.4 million employees and that excludes the post office. Tell me about some of these employees that are impacted. You said it doesn't include the postal service, so what does it include? You're seeing park employees, you're seeing employees at USAID offices,

you're seeing just folks all over the country are losing their jobs. Now, how big a portion of the workforce is it? Still, we don't know. When will we know the extent of these job cuts? It'll take a while for it to show up in the data. One of the first things that we'll notice is people will start filing for unemployment. So we'll see those will begin to pick up. It'll take a while for it to pick up in the monthly jobs report. And that's just because of the way that those numbers are collected.

It's really a mid-month number. So we really might not see the full effect of that until sometime later in the spring. There's a lot of collateral damage to the job market that we're going to see as well. There are some economies that are pretty dependent on the federal workforce, obviously DC and the neighboring counties. Most states have some county with a big proportion of federal workers. You might see things there. We're seeing some job losses for federal contractors as well. That's a really massive group. We don't have a great handle on how many people are federal contractors, but the number is

somewhere in the order of 5 million. In your story, you wrote that these layoffs could have a minor or a seriously damaging impact on the economy. Why is it uncertain? First thing, because we just don't know how many there are. If you have a lot of layoffs, it could have a huge impact. If you have not so many, not as much an impact beyond the size, how quickly can people who were laid off find new work? One concern there is they tend to be pretty educated and older, and that makes it harder

to find a new job. If you live in DC, there's not gonna be as many jobs in DC, so you might have to move. That can make those transitions difficult as well. The other thing is these federal workers, they are providing services. If you're able to cut the workforce and keep on providing those services, then that's one thing.

If in cutting the workforce, you stop providing those services or you delay some of those services, that can clutch up a lot of other economic activity and that can be a problem. Let's take the Department of Education, for example. It doesn't employ that many people. There's 4,400 people at the Department of Education. That's around the era when it comes to the U.S. job market. But a lot of funding for schools around the country comes from the Department of Education. So if there are any sorts of delays or problems with that funding, that's a problem for states that could cause problems.

And what other factors are impacting the labor market right now, aside from this? That's one of the most important things to think about here, is it's not just one thing that's going on. At the same time, we have restrictions on immigration, and there's concerns about supply of workers in that case. We have tariffs that's causing uncertainty among businesses, making it harder for them to plan out and hire. There's also been drops in other types of funding, funding for universities.

A lot of universities have put through hiring freezes. There's also the worries about National Institute of Health funding, which could also have a labor market impact. It's everything everywhere all at once happening here and that could have a deleterious effect on the job market. How do these layoffs affect consumer behavior? The first thing, obviously, if you are a federal worker and you lose your job, you're going to spend less money until you're able to find new employment. If you're a federal worker

and you don't lose your job but you've seen these mass layoffs, maybe you're not going to think about buying that new washing machine. Maybe you're going to be a little bit more conservative with your cash. That could have an effect on businesses. And then if you just open up sort of newspapers around the country that news about these layoffs is there in the front pages and that could have an effect on people as well. Just seeing that, worrying about that, maybe people get a little bit cautious when it comes to spending. That's WSJ reporter Justin

Layhart and that's it for your money briefing. This episode was produced by Zoe Kolkin with supervising producer Melanie Roy. I'm Mariana Aspuru for The Wall Street Journal. Thanks for listening.