How Will DOGE Cuts Impact Feb's Job Report?
Flows remain normal and bullish for now
Recap
❌ Hotter than expected CPI and PPI did not end up being bearish for the market—the market might be looking past this slightly hotter inflation print and towards earnings growth. Jobless claims also came in-line at 213K vs 215K expected.
Flows did not shift bearish and continued at normal bullish levels (which surprised me since inflation has been increasing for the past 5 months).
✅ Inflation is looking to exceed 2024 levels, but when will the market will start to care?
New 52-Week Highs vs New 52-Week Lows
NYSE New 52-Week Highs: 114 vs New 52-Week Lows: 39
Nasdaq New 52-Week Highs: 233 vs New 52-Week Lows: 91
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Posts of Interest
The Department of Government Efficiency (DOGE) initiative to cut waste by freezing funds and terminating employees extends far beyond the 2.3 million federal employees officially on the government payroll. The ripple effects could be larger than anyone expects, impacting millions more workers and slowing economic activity.
It’s estimated that than 6 million people are employed through federal contracts and grants.
As of mid-February 2025, over 85,000 federal employees have been laid off, primarily targeting probationary workers with less than a year of service. And the Internal Revenue Service (IRS) is preparing to lay off up to 15,000 probationary employees,
A 2020 Brookings Institution report by Paul Light estimated that federal contracts and grants accounted for over 6 million jobs, indicating that for every federal employee, there are approximately 2.6 contract or grant employees. This suggests that the current federal layoffs could potentially jeopardize an additional 221,000 to 510,000 private sector jobs associated with federal contracts and grants.
The government has been contributing about 17,000-46,000 monthly jobs of the total non-farm payroll jobs report. In Jan 2025, the government sector contributed a gain of 32,000 jobs, which is approximately 22.4% of the total nonfarm employment increase for the month.
Additionally, January U.S. retail sales fell -0.9% vs -0.2% expected but the market shrugged this off as well.
Forecast
The flows continue to stay in bullish levels, even after the higher inflation prints; however, the February jobs report looks like an upcoming risk event—as we could see <100k net new jobs being created or potentially even negative jobs growth print due to DOGE.
In addition, we continue to see higher prices on eggs, meat, and gas which means that the next CPI report is not looking promising either.
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