An economist is cautioning readers about the possible effects of President Donald Trump’s administration’s layoffs of federal workers on the economy. Torsten Sløk, chief economist at private equity firm Apollo, points out that “risks are intensifying.” Estimates of layoffs could be low, he notes, because they don’t include contractors who will be hit.
Derek Saul wrote at Forbes on Monday, “Thelayoffs from Elon Musk’s Department of Government Efficiency (DOGE) could be much bigger than many expect, according to a prominent economist, who warned about DOGE-led ‘growing’ risks on the broader economy—and the markets, which President Donald Trump has always emphasized as a key barometer of his success.”
Sløk listed DOGE layoffs and increased uncertainty as causes for concern.
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“We are starting to worry about the downside risks to the economy and markets from: 1) the impact of DOGE layoffs and contract cuts on jobless claims and 2) persistently elevated policy uncertainty weighing on capex [capital expenditure] spending decisions and hiring decisions,” Sløk wrote on Saturday.
Data shows more people filing for unemployment benefits in Washington, D.C., but not in Virginia, Maryland, and Washington, D.C. together.
Sløk estimated that total layoffs by DOGE could be around 300,000, which is not a huge number compared to the national unemployment of 7 million. But that number could be misleading. “Studies show,” he wrote, “that for every federal employee, there are two contractors. As a result, layoffs could potentially be closer to 1 million. Any increase in layoffs will push jobless claims higher over the coming weeks, and such a rise in the unemployment rate is likely to have consequences for rates, equities, and credit.”
“The largest amount of spending on federal contractors are at defense companies Lockheed Martin, RTX and General Dynamics, according to the System for Award Management,” Saul wrote.
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“Credit spreads have not responded the way they normally do to rising policy uncertainty. Economic policy uncertainty is spiking higher, but credit spreads are not widening... The question is if persistently elevated policy uncertainty will begin to have a negative impact on capex spending and hiring decisions,” he added.
“The bottom line is that the incoming data remains strong… But the near-term downside risks to the economy and markets are growing,” Sløk wrote.