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Trump’s war on the federal bureaucracy may already be hurting D.C.’s economy

(John Kelly/The Washington Post)

A little more than a month into the Trump administration’s hiring freeze, the federal government’s footprint in D.C. is already starting to shrink.

The region lost 2,700 federal jobs between January and February, according to data released Friday by the Bureau of Labor Statistics, in what could be the first real impact of Donald Trump’s policies on the health of the local economy. Most of the losses came in the District proper, as opposed to the suburban periphery that has a larger presence of federal contractors.

Such monthly fluctuations can reverse themselves quickly and are often attributable to measurement error. But some prominent local economists say the dip in the numbers could potentially be a result of the hiring freeze the president announced in late January.

“In certain agencies morale is pretty low, and some people are deciding that they’ve had enough,” said Anirban Basu, a regional economist with Sage Policy Group. “At the same time there is little inflow with respect to hiring because the freeze is in place.”

The reduction in federal employment hits as the local economy is coming off one of its best years in recent memory. The D.C. metropolitan area added 62,400 jobs in the one-year period ending in February, according to the new government data. Unemployment rates held steady in Maryland and the District at 4.2 percent and 5.7 percent respectively, and dropped slightly to 3.9 percent in Virginia, despite a healthy influx of new job-seekers.

The 1.97 percent employment growth rate, which was slightly better than that of the nation as a whole, is regarded as strong but not overwhelming.

Beyond the immediate hiring freeze, Trump is proposing big reductions to federal agencies like the State Department and the Environmental Protection Agency, cuts that likely would have an outsize impact on the D.C. area.

Budget director Mick Mulvaney has said the federal cuts would likely require layoffs, and the budget cuts Trump is seeking could hurt federal contractors.

“You can’t drain the swamp and leave all the people in it,” Mulvaney said at a meeting with reporters last week.

A preliminary analysis by the Stephen S. Fuller Institute at George Mason University predicts that the president’s budget in its current form would cause the region to lose at least 20,000 federal jobs and take at least $2.3 billion in federal salaries out of the economy. The same analysis said the budget would eliminate up to 12,000 private sector contractor jobs here by decreasing procurement spending.

“I think this underscores our vulnerability to future federal cutbacks,” said the institute’s namesake, economist Stephen S. Fuller “There is already a dampening of growth being experienced in the Washington area because of the uncertainty of the new administration.”

But the cuts the president is seeking are far from finalized, and an array of regulations and union arrangements mean letting federal workers go is easier said than done.

In the meantime, the president’s hiring freeze may be having some effect. One economist said the D.C. Department of Employment Services, which processes unemployment insurance requests, reported a substantial uptick in unemployment insurance applications coming from federal workers in January.

A temporary dip in federal unemployment is not out of the ordinary for a presidential transition, and some past administrations have temporarily frozen federal hiring only to grow the bureaucracy later.

Some are also hoping that the president’s plan to increase defense spending by $54 billion will bring new business to federal contractors. But if Trump’s promise to build more planes and ships holds true, the benefits of such a defense build-up will mainly go to shipyards and warehouses in places like Texas and Virginia Beach. The D.C. area’s business community has little in the way of manufacturing.

President Trump wants to reduce the size of the federal workforce. The Post's Jonathan O'Connell shares what this could mean for the D.C. area economy. (Video: Claritza Jimenez/The Washington Post, Photo: Photo: Reuters/The Washington Post)