Washington Region's Economy Starts to Wobble Amid Federal Budget Cuts

Strategic Insights -

The Washington region's economy is beginning to experience the disproportionate impacts of federal budget cuts, with signs of strain emerging across key sectors that once helped prop up the region. Unemployment claims are surging, contractor work is shrinking, and local consumer spending is declining. The Trump administration's overhaul of the federal workforce, including the elimination of thousands of federal jobs, is being acutely felt in a national capital region already struggling to recover from the pandemic.

Key Takeaways:

  • Unemployment claims in D.C. rose 64% between February and June, from 1,064 to 1,747, with claims increasing steadily due to federal workers turning to unemployment insurance.
  • The number of federal workers being paid not to work as part of the Trump administration's deferred resignation program has exceeded 154,000 nationwide, and terminated federal workers have described lengthy delays in accessing paperwork necessary to file for unemployment.
  • Layoffs tracked through Worker Adjustment and Retraining Notification Act (WARN) notices are rapidly climbing, with nearly 10,000 workers cut in the D.C. region as of July, more than the total of the last two years combined.
  • Consumer spending in D.C. is starting to slip, with a 9% drop in full-service restaurant spending in June compared to the prior year, a steeper drop than in other big cities like Atlanta, Boston, and Miami.
  • The D.C. Office of Revenue Analysis is forecasting a rare population dip in 2027, a 0.2% decline, along with shrinking tax collections. Tax revenue for 2026 has been revised from growth to decline, and property and business taxes are expected to lag in 2027.
  • Housing construction is slowing, with new apartment construction tapping the brakes, about 8,000 units in the first quarter of 2025, well below the usual 12,000 to 16,000 seen in recent quarters.
  • Tourism's glow is fading, with the WorldPride celebration in June failing to lift occupancy beyond 72%, and air passenger traffic declining in April, suggesting that broader travel to the region remains sluggish.
  • The city's fiscal outlook is growing increasingly concerns, with employment in leisure and hospitality still below pre-pandemic capacity and sales tax collections slowing.

Statistics:

  • Unemployment claims in D.C. increased from 1,064 to 1,747 between February and June.
  • The number of federal workers being paid not to work as part of the Trump administration's deferred resignation program has exceeded 154,000 nationwide.
  • Layoffs tracked through Worker Adjustment and Retraining Notification Act (WARN) notices are accelerating, with nearly 10,000 workers cut in the D.C. region as of July.
  • Consumer spending in D.C. dropped 9% in full-service restaurant spending in June compared to the prior year.
  • The D.C. Office of Revenue Analysis is forecasting a 0.2% decline in population in 2027 and shrinking tax collections.
  • New apartment construction is about 8,000 units in the first quarter of 2025, well below the usual 12,000 to 16,000 seen in recent quarters.
  • The WorldPride celebration in June failed to lift occupancy beyond 72%.

Sources:

  • "Washington region's economy starts to wobble amid federal budget cuts" by Federica Cocco and Olivia George, The Washington Post, July 2023.
  • D.C. Office of Revenue Analysis, June 2023 tax revenue outlook.
  • City of Washington, D.C., Chief Economist Fitzroy Lee.
  • CoStar, WorldPride celebration occupancy data.