The Trump administration’s extensive federal spending cuts and growing economic uncertainty contributed to a surge in layoff plans last month, reaching levels comparable to a recession, according to new data released Thursday.
In February, U.S.-based employers announced plans to eliminate 172,017 jobs—a 103% increase from the previous year and the highest total for the month since 2009, according to the latest monthly job cuts report from Challenger, Gray & Christmas.
This marks the 12th highest monthly job cut total recorded in the 32 years that Challenger has been tracking layoffs. The previous 11 highest totals—including four during the Covid-19 pandemic—occurred while the U.S. was in a recession, according to Challenger’s data.
The government sector accounted for the largest share of announced job cuts, largely due to actions taken by the newly established Department of Government Efficiency (DOGE), which implemented layoffs, reduced federal spending, and terminated contracts.
Challenger reported that 62,242 job cuts were announced across 17 federal agencies, representing a staggering 41,311% increase from the 151 cuts announced through February 2024.
The impact of DOGE’s actions extended beyond the public sector, with funding reductions for private nonprofits leading to an additional 894 job cuts, the report noted.
Outside of the government sector, the highest layoffs occurred in retail (38,956), technology (14,554), and consumer products (10,625).
Thursday’s report raises concerns, according to Gregory Daco, chief economist at EY Parthenon, who pointed out that government layoffs accounted for one-third of all announced job cuts.
“That in itself is something that is concerning and does portend a shift in the way employers are approaching this labor market,” he said.
As for the reasons behind the planned layoffs, which are expected to take effect in the coming weeks and months, DOGE-related actions topped the list (63,583), followed by bankruptcies (35,172), market and economic conditions (28,098), and corporate restructuring (16,828).
“With the impact of the Department of Government Efficiency actions, as well as canceled government contracts, fear of trade wars, and bankruptcies, job cuts soared in February,” Andrew Challenger, senior vice president at Challenger, Gray & Christmas, said in a statement.
Despite the bleak job cut figures, Thursday’s report contained a positive development: Hiring plans surged in February, with companies announcing 34,580 new positions—the highest February total since 2022.
Warning Signs Emerge
The Challenger report provided one of the first concrete data points on federal workforce reductions and their potential ripple effects. Economists are also monitoring weekly unemployment claims to gauge the labor market’s health.
According to the latest jobless claims data, overall layoff activity remains relatively low, comparable to pre-pandemic levels and below historical averages. Initial unemployment claims declined by 21,000 last week to 221,000, according to a separate Labor Department report released Thursday.
However, that same report revealed an increase in federal workers filing for unemployment. The number of initial claims under the Unemployment Compensation for Federal Employees program rose to 1,634 for the week ending February 22, an increase of 1,020 from the prior week.
Recent data suggests that the job market may be weakening. Payroll processor ADP’s latest employment report, released earlier this week, showed that hiring in the U.S. private sector slowed significantly in February.
Private-sector employment grew by an estimated 77,000 jobs last month, a sharp decline from January’s gain of 186,000 and well below economists’ expectations of 142,500, according to FactSet estimates.
ADP’s data indicates that hiring among U.S. private-sector companies fell more sharply than anticipated.
Service-based industries that depend heavily on consumer activity experienced some of the largest employment declines, according to ADP.
“I know there’s been a lot of attention to tariffs, new policies being enacted even this week, but we can’t lose sight also of the biggest driver of the economy, which is consumers,” said Nela Richardson, ADP’s chief economist, during a call with reporters on Wednesday.
Consumer spending declined in January for the first time in nearly two years, marking the largest monthly drop since February 2021, according to Commerce Department data released last week.
However, economists caution against reading too much into this decline, noting that consumer spending typically slows after the holiday season and that January was affected by major weather events and wildfires.
“So long as the consumer stays resilient, I think the economy is in good shape,” Richardson said.
Although ADP’s employment data does not always align with the Bureau of Labor Statistics (BLS) monthly jobs report, it remains a key indicator of labor market trends.
Donald Trump (Photo: Joshua Roberts)What to Expect in Friday’s Jobs Report
The BLS is set to release its February jobs report at 8:30 a.m. ET on Friday. Economists generally expect the report to reflect another month of steady job growth.
Consensus estimates project a net gain of 160,000 jobs, with the unemployment rate holding steady at 4%—a near-historic low. If these forecasts are accurate, February’s job gains will exceed January’s unexpectedly low increase of 143,000, which economists believe was affected by seasonal factors, cold weather, and wildfires in Los Angeles.
However, the employment cuts driven by DOGE are not expected to significantly impact February’s jobs report.
This is partly due to timing, as most of the layoffs occurred after the survey period, which covers the week of February 12. Additionally, some affected federal workers may still be classified as employed if they received any pay during the relevant period.
Furthermore, some government employees are currently serving out paid notice periods, meaning they may not appear as unemployed for weeks or even months.
Economists told that the impact of federal job cuts will likely become more evident in the March and April jobs reports.
The February data might show some softness in federal employment, but since government jobs make up only a small fraction of the total workforce, the overall employment figures are unlikely to be significantly affected, said Claudia Sahm, chief economist at New Century Advisors.
“In some ways, [the February jobs report] could be a snapshot of where the labor market was before things started really moving,” said Sahm, who developed a widely followed recession indicator. “And we won’t see anything really in response to the tariffs or other policies.”
Another factor complicating economic analysis is a timing issue. Due to a calendar quirk, the Job Openings and Labor Turnover Survey (JOLTS) for January will not be released until next week. Typically, JOLTS data is available three days before the monthly jobs report.
Preparing for Uncertainty
Since the Covid-19 pandemic, economic forecasting has become more challenging, and Friday’s jobs report is no exception.
While the Trump administration’s federal job cuts may not yet be fully reflected in employment data, some economists warn that their effects could surface elsewhere.
Dean Baker, economist and co-founder of the Center for Economic Research, suggested that federal spending reductions could be contributing to broader hiring slowdowns in the private sector.
“Many businesses have put hiring plans on hold; this is especially true in the healthcare sector, but we could see similar trends with state and local governments, universities, and other sectors that rely on federal support,” Baker wrote in commentary earlier this week.
“It is not out of the question for job growth to be close to zero in February, and we may also see a modest uptick in the unemployment rate.”
A Shifting Labor Market
In the years following the economic disruption caused by the pandemic, job growth has slowed but remained steady enough to sustain consumer spending and support a “soft landing” scenario—bringing down inflation without triggering a recession.
“We have been in an environment where the labor market has its flaws but has been in a really good place,” Sahm said. “There’s a certain degree of resilience, given we have a low unemployment rate, low claims and job growth has been, on average, a really respectable pace.”
However, concerns persist about whether that stability can be maintained.
At the start of February, the U.S. labor market was still expanding at a pre-pandemic pace, continuing an unprecedented period of job growth.
Yet signs of strain have begun to appear: Businesses have slowed hiring, voluntary job turnover has declined, and unemployed individuals are taking longer to return to the workforce.
While economic uncertainty tied to the election, tariffs, and government spending cuts could dampen hiring, some experts believe that once these factors stabilize, momentum could return.
For now, however, both businesses and workers appear to be adopting a more cautious stance.
