Tesla revenue dented by softer demand as Musk warns of "rough quarters" ahead
Investing.com - A string of recent federal government layoffs announced by the Trump administration could put a "significant" dent in payroll employment this year, but are unlikely to be seen by Federal Reserve policymakers as a persistent slowdown in U.S. labor demand, according to Barclays (LON:BARC) analysts.
Spearheaded by Tesla (NASDAQ:TSLA) CEO Elon Musk and under the watch of President Donald Trump, the newly-created Department of Government Efficiency -- or DOGE -- has been pushing to ratchet down the size of the federal government, often through buyout offers and widespread dismissals.
Musk and Trump have argued that the effort, which has faced some sharp backlash and legal challenges from Democratic-led states and liberal-leaning legal groups, is designed to root out wasteful spending.
About 100,000 workers have either accepted buyouts or been fired, according to Reuters, while analysts predict that more layoffs are likely to come in the months ahead. There are roughly 2.3 million federal employees in total.
"DOGE has the potential to leave a significant mark on payroll employment at various points this year," the Barclays analysts led by Jonathan Millar said in a note to clients.
Citing a relatively resilient jobs picture and uncertainty around the inflationary impact of Trump’s policy actions, the Fed pushed pause on a policy easing cycle in January and signaled that it will take a wait-and-see approach to future possible borrowing cost reductions,
For the central bank to shift course and resume rate drawdowns, officials would need to see evidence that the DOGE-driven job cuts are part of a broader weakening in aggregate labor demand, the Barclays analysts said.
However, the bank flagged that rate-setters at the Federal Open Market Committee are "highly unlikely" to infer a broader cooling in the U.S. labor market solely from the layoffs.
"The federal civil service — excluding the post office — amounts to about 2.4 million jobs, or just 1.5% of overall payroll employment and less than 2% of aggregate wage and salary income. A downsizing in the vicinity of 500,000 jobs would pale in comparison with aggregate job separations in the U.S. economy," the analysts wrote.
The comments come ahead of the release of the all-important nonfarm payrolls report for February later this week. Economists anticipated the gauge will come in at 156,000, compared with 143,000 in January.