Monthly Economic Insights
February 2025
Employment, layoffs, and the Fed: How things look so far
In January, the economy added 143,000 jobs, with the unemployment rate slightly decreasing to 4.0%. However, recent mass layoffs in the federal government (as well as some in the private sector) are likely to impact these figures.
Since January, approximately 30,000 federal employees have received termination notices, and it is believed an additional 75,000 accepted deferred resignation in February. With these resignations and other potential workforce reduction initiatives, as many as 200,000 to 300,000 government jobs (about 9% to 13% of total federal jobs) might be cut this year. In Kansas City, Mo., there are around 40,000 federal employees (including contractors), and rumblings of layoffs are circulating.
Even if federal job cuts approach the higher estimates, that would still be just 0.2% of the U.S.’s 159 million nonfarm jobs and only 19% of the 1.6 million jobs that economists expect to be created this year. However, the ripple effects could be significant when you consider reduced consumer spending on restaurants, cars, and even streaming services as well as the impact on individuals and their families.
The federal layoffs coincide with ongoing return-to-office (RTO) mandates across public and private sectors. While RTO policies aim to enhance productivity and collaboration, they have introduced challenges, including employee resistance and logistical complexities. Though the current climate of job insecurity, exacerbated by government downsizing, may influence employee compliance, the low unemployment rate still gives a slight edge to workers who want to make lateral moves for increased flexibility.
Inflation remains a pressing concern, with the latest reading of 3.0% in January still well above the Federal Reserve's 2% target. Factors contributing to sustained inflation include recent import tariffs and rising energy costs.
In response, the Federal Reserve held the federal funds rate at 4.25% to 4.50% during its January meeting, following a series of rate cuts in late 2024. Policymakers have signaled a cautiously optimistic approach, expecting just two rate cuts this year, contingent upon economic developments.
Bottom Line: The convergence of federal layoffs, inflationary pressures, and policy uncertainties has led to a more guarded economic outlook. The top 10% of earners, those making over $250,000, continue to spend; however, tariffs and taxes could cause some pullbacks or delayed purchases. Uncertainty always causes concern, the question is how long before policy clarity emerges, implications are estimated, and the realities of the marketplace kick in.
— Marcus Scott, CFA, CFP®, Chief Investment Officer (CIO) for Country Club Trust Company
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