D.C. businesses expect prolonged economic slump as federal layoffs unfold

D.C. businesses are investing less in the local economy as they anticipate a prolonged financial downturn driven by federal worker layoffs, the D.C. Policy Center reported this week.

The nonpartisan think tank reported that 90% of 317 local business owners and executives responding to a survey said they had not hired new employees or expanded their physical footprint as of mid-July. Roughly 6 in 10 businesses cited federal budget cuts, agency relocations and mass layoffs driving down their profits.

Yesim Sayin, the D.C. Policy Center’s executive director, said businesses have seen fewer customers and less spending as the layoffs drive people into unemployment or financial uncertainty.

“As a result, few businesses are taking risks,” Ms. Sayin said Thursday in a text message, referring to the impact of the layoffs on consumer habits.

More bad news is ahead: 85% of businesses expect the D.C. economy to be the same or worse at the start of next year. Another 83% expressed the same sentiment about the region’s economy, and 75% said the same about the national economy.

The D.C. Policy Center survey included a representative sampling of local businesses: 11% were nonprofits, 12% were restaurants and 17% were professional, scientific, and technical companies. More than 8 in 10 had 20 employees or fewer.

According to the Greater Washington Board of Trade, the District has 79,579 small businesses, accounting for 98.2% of all companies in the city. They employ 260,713 workers, accounting for 48% of the D.C. workforce, and heavily depend on the federal government’s presence for tourism and spending.

President Trump’s efforts to reduce the federal government’s size and scope have taken a heavy toll on the local economy since his return in January.

The Office of Personnel Management estimates that about 300,000 of the nation’s 2.5 million federal workers had left the federal government by the end of last month. That includes both those who have left voluntarily and those who were pushed out.

Roughly 1 in 5 federal workers live in the District, Maryland or Virginia. So do 1 in 4 private government contractors.

More cuts may be on the horizon, as Mr. Trump has threatened a fresh round of mass layoffs during the federal government shutdown.

Responding to the D.C. Policy Center report on Thursday, the White House defended the downsizing as a right-sizing of the local economy.

“Washington, D.C.’s overreliance on federal government bloat to buoy its economy has contributed to persistently high unemployment rates, with D.C. often having the highest unemployment rate in the country well before this administration,” White House spokesman Kush Desai said in a statement to The Washington Times.

“The Trump administration is unleashing a robust supply-side agenda to drive private sector job and investment growth that, along with President Trump’s initiative to Make DC Safe & Beautiful Again, will drive sustainable economic growth in the years to come,” Mr. Desai added.

It remains to be seen whether private sector growth will offset the government cuts.

Legal challenges and the federal government hiring back some workers have made it unclear how many former government employees have left the area.

“Unfortunately, we are not tracking how many federal workers have left their jobs or have left and been hired back during the administration,” Tim Kauffman, a spokesman for the American Federation of Government Employees, AFL-CIO, said in an email last month.