DOGE government layoffs could start becoming a factor in jobs report

For federal government workers who worked at agencies tied to this year’s job cuts, an apparent slowdown in the labor market is happening at the worst possible time.

A gradual pullback in hiring and job openings has come at the same time that hundreds of thousands of federal workers are out looking for employment, the casualty of layoffs recommended by Elon Musk’s Department of Government Efficiency.

Although economists almost universally downplay it, one straw in the wind may have come Wednesday, when payrolls processor ADP said private sector hiring in June unexpectedly contracted by 33,000 jobs, far lower than economists’ estimate of 100,000.

And while the impact from the DOGE layoffs has been fairly muted so far in relation to total job growth, recent trends show that’s about to change, according to data from the Indeed Hiring Lab.

Weak white collar demand

“There are still a lot of questions about how that’s all going to trickle into the labor market. A lot of people are out there looking for work from the federal government,” Indeed senior economist Cory Stahle said. “The big question is whether or not they’re going to be able to find them given the weaker demand for the higher education, white-collar jobs now.”

From January through April of this year, the number of job openings fell by 5% while the hiring rate has hovered around levels last seen in 2014, according to Bureau of Labor Statistics data.

At the same time, Indeed said it has seen applications from workers at federal agencies soar by 150%, a trend that has been particularly acute at knowledge-work jobs such as data analytics, marketing and software development. While May provided some hope, with applications dipping by 4%, there are still signs that the DOGE efforts are having an impact on the broader labor picture.

“Demand coming from employers has really pulled back a lot more for these white-collar jobs than it has for many of other kind of in-person skilled labor roles,” Stahle said. “So that’s a real big challenge for anybody entering the labor market right now.”

Slowdown in payrolls

The DOGE factor is a significant consideration as policymakers look for cracks in what had been a strong, and virtually uninterrupted, expansion in the labor market since the Covid pandemic.

An update on conditions comes Thursday when the BLS releases the June nonfarm payrolls count. Economists surveyed by Dow Jones expect to see growth of just 110,000, which, if accurate, would mean that every month in the first half of the year produced fewer than 150,000 new jobs. Outside of the pandemic year in 2020, it’s the slowest start to a year since the financial crisis.

The unemployment rate is expected to edge higher to 4.3%.

The efforts this year by DOGE to pare the federal workforce have resulted in more than 280,000 positions cut, according to Challenger, Gray & Christmas.

To be sure, it’s difficult to gauge what the exact impact on the headline jobs numbers will be, given that many of the displaced workers have found other employment and some of the initial layoffs have been reversed. Also, job openings at the federal level are virtually unchanged this year, though that doesn’t necessarily mean the vacancies will be filled.

However, Stahle said the efforts by the Trump administration to reduce head count are not the only obstacles facing job seekers.

He also noted that tech jobs are harder to come by as the Federal Reserve keeps its interest rate benchmark elevated, even in the face of persistent calls from President Donald Trump to ease monetary policy.

Higher rates discourage debt-dependent tech companies from borrowing and thus expanding, keeping hiring in check, Stahle said.

“A lot of the tech startups and other companies rely on borrowing to grow and hire, and if the cost of borrowing goes up, it can naturally restrict things,” Stahle said. “They went on a hiring spree [after the Covid pandemic].They brought in a lot of people and haven’t necessarily needed to hire as a result.”