What did you do last week?
The Sandbox Daily (3.3.2025)
Welcome, Sandbox friends.
Today’s Daily discusses:
DOGE targets federal workforce
Let’s dig in.
Blake
Markets in review
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VIX: +16.05% to 22.78
Quote of the day
“A happy relationship is made up of two good forgivers.”
- Ruth Bell Graham
What did you do last week?
The Trump administration is acutely focused on reducing the federal workforce as part of its fiscal strategy, proposing and now implementing measures like reductions in force (RIF), severance packages, hiring freezes, and agency consolidations and/or eliminations.
Under the directive of the Department of Government Efficiency (DOGE), the Office of Personnel Management (OPM) is e-mailing hundreds of thousands (if not millions) of federal employees asking:
“What did you do last week?”
U.S. federal employees suddenly woke up one morning living Tom Smykowki’s nightmare – sitting across the table from Bob and Bob, answering this simple question with their jobs, mortgage payments, and self-worth hanging in the balance.
It’s unimaginable in the worst way possible.
The Consumer Financial Protection Bureau (CFPB), Social Security Administration (SSA), Securities and Exchange Commission (SEC), and a myriad of other agencies find themselves in the crosshairs as part of the Trump administration’s attempts to slash federal spending.
And yet, data from the Bureau of Labor Statistics (BLS) suggests there may be limited scope for significant cuts.
As the chart below shows, federal jobs – excluding active-duty military personnel – have been declining as a percentage of total payroll employment for decades.
Today, federal jobs represent just 1.9% of all jobs, equating to roughly three million positions.
In contrast, state and local governments are much larger employers, accounting for 13.0% of total payroll jobs, but the federal government lacks authority over those positions.
Federal employees on average earn $106.5K annually, so a 10% reduction in the federal workforce would save just $32 billion per year, or 0.5% of the 2025 federal budget.
Why 10%?
Well, 10% is just an estimate, but one that seems to be gaining traction, as Apollo Chief Economist Torsten Sløk recently noted.
Achieving this 10% reduction is challenging in and of itself, as defense and national security-related agencies make up 70% of federal employment, when excluding USPS workers (which itself is a big question mark).
Given the current geopolitical climate, downsizing these areas may prove quite difficult.
Additionally, some agencies, like the Federal Aviation Administration for example, are grossly understaffed. Some media outlets have reported that 90% of U.S. airport control towers do not meet staffing targets.
Of course, then we must consider the legality of these actions. Courts are just now beginning to weigh in. I’d expect lawyers who litigate these matters are sharpening their pencils.
There are downstream consequences to consider as well. Namely, private sector jobs such as contractors. Some have estimated two related private-sector jobs that could be lost for each one at the federal level.
It seems unlikely that spending cuts will generate enough savings to offset the administration’s tax cut plans. Discretionary spending has been increasingly constrained by the rising costs of mandatory expenditures and interest payments on the federal debt.
As a result, fiscal deficits could continue to grow, as the federal jobs cuts prove de minimis.
This becomes one headwind that may prevent any significant decline in long-term interest rates, where newly-appointed Treasury Secretary Scott Bessent has publicly announced it is the administration’s goal to bring down the 10-year Treasury rate.
Source: Apollo, JP Morgan, Bloomberg, John Burns Research & Consulting, Barron’s, New York Times
That’s all for today.
Blake
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Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.
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