Freeze....

So, my whole family is sick and I am not feeling all that great myself.  Started with # 1 son getting strep and running a 103 temp with hives.  Moved on to the wife and is now progressing.  Have to love it.  Anyway…

One of the first acts of the newly elected President was to freeze federal hiring.  Now aside from the complete lack of a justifiable reason to do this (other than some deeply rooted dislike of federal bureaucrats) I also tend to think that this is an especially poor economic choice.  When you look at the monthly Non-Farm Payroll numbers the number of new jobs attributed the federal government is only about 2500 or so a month.  That in and of itself is not going to have a significant impact on the employment situation.  Add in the rates of retirement in an increasingly aging federal workforce and the impact becomes more noticeable.  A recent BAO study showed that recent retirement rates of federal employees ran at about 3.5%.  Based on federal employment of about 3,000,000 you get a negative impact to the jobs numbers of almost 10,000 per month assuming that the rate doesn’t accelerate (which given the love shown by the new administration in the early days is not a forgone conclusion.)  The same study estimated that by 2017, nearly 30% of the federal workforce could be eligible for retirement.  It is not a reach to think that the retirement rate could tick up significantly.

 

Where I think, this could begin to become an issue is in the execution of work on behalf of the government.  Federal projects require federal employees to manage the very complex requisition process that is required to engage private companies.  In addition, much of the planning and oversight of projects is dependent on having employees in the seats to take on those roles.  Given the potential downdraft in federal employees, this could have the real effect of slowing and even halting projects that otherwise would have been undertaken.  This would then create a multiplicative effect of the shrinking federal workforce into the private sector.  As the President, has already show an unwillingness to ever admit an error, it is reasonable to think that even as the effects begin to show themselves (which is likely into the second half of the year) the administration would be slow to course correct. 

Now the argument is going to be that the other things that the administration is doing will have so much more of a positive effect that any slowing caused by the federal hiring freeze would be overwhelmed.  That could be true but the fact is that the freeze is in effect today and nothing that will add stimulus to the economy is (if anything the higher interest rates, renewed uncertainty around ACA and other regulations and just the current tone is all adding unknowns to the markets which equals slowing (always.))  Everything told I think the downdraft will more than offset any token job adds that the President is currently getting.  Given the economy’s frail recovery despite exceptionally low interest rates and I think we could be in for a rocky ride.  

I think the President is going to learn that everything has an effect… even throw away executive orders that were meant to be more symbolic than anything.