'detox': Fading Outlook On Trump's Economy Clouds First Jobs Report

Elon Musk is taking a buzz saw to government contracts and workforces at politically sensitive federal agencies. Those efforts are starting to become visible in the U.S. labor market.

The Labor Department reported on Friday that employers added a solid 151,000 jobs in February, while the jobless rate ticked up to 4.1 percent — still near historical lows. But while there was meaningful growth in industries such as financial services and health care, federal government employment shrank by 10,000 positions. That may be a sign of things to come for the broader economy.

The report reflects the strong economic fundamentals that have greeted President Donald Trump in his second term, but as the federal workforce faces the possibility of deeper cuts — and markets whipsaw as Trump adopts and withdraws punishing new tariffs — clouds are forming over the economic outlook.

Consumer confidence has fallen sharply and more businesses areraising alarms over the policy uncertainty by delaying hiring or investment plans. If those trends persist, it could threaten Trump’s ability to follow through on ambitious policies that are intended to permanently alter global trade and shake up the world financial system.

“Despite strong employment, solid wage growth and healthy spending, the sharp decline in consumer confidence in February highlights increased pessimism among Americans about the economy,” Joe Gaffoglio, the CEO and president at Mutual Of America Capital Management, wrote in a research note after the report. “Consumers are sensitive to the continued high costs for basic goods and services, and now the potential impact from tariffs are adding to their concerns.”

So far, the dreariest economic indicators have been concentrated in “soft” survey data that’s less reflective of labor market fundamentals. But there are indications that reductions to the federal workforce — along with broader policy uncertainty — have started to make a dent.

The outplacement firm Challenger, Gray & Christmas on Thursday reported that the feds announced the elimination of 62,242 positions across 17 agencies last month. Total reductions reported by U.S. employers swelled to more than 172,000 — the largest number since 2009 — as businesses reckoned with how Trump’s agenda could reshape the economy. The payroll processing firm ADP also cited uncertainty as a factor when its monthly report on private sector hiring disappointed earlier this week.

“With the impact of the Department of Government Efficiency [DOGE] actions, as well as canceled Government contracts, fear of trade wars, and bankruptcies, job cuts soared in February,” Andrew Challenger, a senior vice president and workplace expert for the company, said in a statement.

Shortly before the Labor Department released the February report, Treasury Secretary Scott Bessent said in an appearance on CNBC’s Squawk Box that the economywill have to go through a “detox” period when it comes to government spending.

“Could we be seeing that this economy that we inherited is starting to roll a bit? Sure. And look, there’s going to be a natural adjustment as we move away from public spending to private spending,” Bessent said.

Trump’s deployment of Musk to slash away at government waste and abuse is being cheered by many Republicans as a long-overdue remedy for a bloated federal bureaucracy. But the releases from private data providers suggest that DOGE’s activities could ripple well beyond Washington and into the nationwide economy — potentially disrupting businesses that depend on federal contracts.

Probationary employees across the government have been let go (some have been brought back — for now). Contracts have been canceled and funds have been frozen (some have been unfrozen — for now). Some Wall Street analysts now estimate that workforce cuts could climb into the hundreds of thousands over the course of 2025, Bloomberg reported.

Notably, the surveys that were used to construct the February jobs report covered an earlier time of the month — before many DOGE-related workforce cuts began in earnest — and it may take some time before the actual effects are fully visible in the data.

“It’s going to take time for things to flow through. This is happening very fast — and it feels very fast — so people are expecting things to show up in the data as fast as things are happening in the news, and that’s just not how it works,” said Martha Gimbel, a former Biden administration economist who is now the executive director and co-founder of the Budget Lab at Yale.

Unemployment insurance claims in the District of Columbia have been inching higher in recent weeks, Gimbel and Ernie Tedeschi wrote in a research note, which suggests that the workforce reductions may soon affect unemployment. And Bank of America researchers reported that card spending growth in the Washington metro area had fallen 0.3 percent compared with last year, “likely due to DOGE job cuts.”

Omair Sharif, president of Inflation Insights, said the “prospects are there” for DOGE-related cuts to eventually impact the private sector more widely, particularly in sectors like professional business services that rely on government contracts. He cautioned that the losses reported by Challenger in January and February are actually smaller than what the company reported during the same periods in 2023 and 2024.

That means whatever effects DOGE took on the labor market is “likely more of a March or April story,” he said.

Trump on Thursday told his Cabinet that staffing and policy decisions are ultimately their purview — not Musk’s — and that Musk’s role would remain limited to making recommendations. The president is famously sensitive to market forces and if government reductions begin to drag down private sector hiring, there may be political consequences.

Democrats are prepared to pounce if and when that occurs.

“Beneath the surface of today’s numbers, hiring rates are slowing, real incomes are no longer rising, and state and local job gains are dissipating — leaving our labor market increasingly vulnerable,” Sen. Elizabeth Warren, the ranking Democrat on Senate Banking, said in a statement Friday. “It’s a stark reminder that Trump’s haphazard trade wars, Elon Musk’s attack on government programs, and Congressional Republicans’ plan to give more tax cuts for billionaires will hurt families across the country.”