Chart of the Week

The chart above illustrates the recent spike in first-time unemployment claims by federal workers (+137% on a year-over-year basis in the week ended February 22). Meanwhile, overall initial jobless claims increased 8.2% on a year-ago basis in the week ended March 1 and remain well below a threshold signaling a recession.

Although federal workers account for less than 2% of non-farm payrolls, recent layoffs have the potential to increase noticeably in the coming months. The negative economic impact will likely hit hardest in smaller, less economically diverse cities and in larger metro areas like Washington, D.C. that are more dependent on federal employment.

We anticipate that federal layoffs will contribute to moderating U.S. job gains in 2025. In our view, the unemployment rate will remain at a historically low level through year-end due to accelerating economic growth later in 2025 and tighter immigration policies limiting labor supply in construction and several other industries. The silver lining over the longer term is the potential gain in productivity as government operations adjust to reduced headcounts and the more productive private sector absorbs federal workers.

Forecasts, estimates, and projections are not guaranteed and are based on certain assumptions and views of market and economic conditions which are subject to change.

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