Federal Layoffs Add Pressure to Cooling Job Market Ahead of June Employment Report

As anticipation builds for the upcoming June employment report, a new source of strain is emerging in the U.S. labor market: mass layoffs of federal workers tied to recent government downsizing initiatives.

The Department of Government Efficiency (DOGE), a newly formed agency under President Donald Trump’s administration, has driven aggressive cuts to the federal workforce—an effort that has already eliminated more than 280,000 positions, according to figures from Challenger, Gray & Christmas. While the ripple effects of these reductions have been slow to surface in broader employment metrics, analysts say that could be changing.

Recent data from the Indeed Hiring Lab shows a dramatic 150% surge in applications from former federal employees, particularly in white-collar sectors such as data science, marketing, and software development. These workers now find themselves entering a market where demand for such roles has weakened significantly.

“There are a lot of federal employees suddenly looking for work, but the jobs they’re qualified for just aren’t as abundant as they were a few years ago,” said Cory Stahle, a senior economist at Indeed. “Employer demand has fallen sharply in higher-education and professional roles, while blue-collar and in-person skilled labor markets have held up better.”

According to the Bureau of Labor Statistics, job openings declined by 5% from January to April, and hiring rates have hovered near levels not seen since 2014. Although May brought a slight dip in federal job-seeker applications—down 4%—the broader trajectory remains upward.

The shift comes at a time when the labor market is already showing signs of fatigue. Private payrolls shrank by 33,000 jobs in June, according to a report from ADP, defying expectations of 100,000 new positions. This marks a notable reversal from the consistent, albeit modest, job growth seen earlier in the year.

Economists are now bracing for a weaker-than-usual employment report from the Bureau of Labor Statistics, due out Thursday. Projections suggest the economy added just 115,000 jobs in June. If accurate, that would make 2025 the slowest start to a year for job creation—excluding the pandemic-disrupted 2020—since the 2008 financial crisis. The unemployment rate is expected to inch up to 4.3%.

Despite the magnitude of the federal job cuts, their precise impact on headline employment figures remains unclear. Some affected workers have already secured new jobs, while a number of layoffs were later reversed. Moreover, federal job postings have remained relatively stable this year, though it's uncertain whether these roles will actually be filled.

Beyond government layoffs, other headwinds continue to suppress hiring—particularly in tech, where elevated interest rates have made it more difficult for startups and growth companies to access capital. That’s put a freeze on expansion plans and curbed the sector’s once-rapid hiring pace.

“A lot of these firms went on a hiring binge post-pandemic and are now operating with the staff they brought on during that surge,” said Stahle. “With borrowing costs still high, they’re reluctant to add more people to payroll.”

For the growing number of displaced federal workers, especially those in specialized knowledge roles, the search for stable employment in a softening economy may prove challenging—just as the broader labor market enters a delicate phase.