The layoffs from Elon Musk’s Department of Government Efficiency (DOGE) could be much bigger than many expect, according to a prominent economist, who warned about DOGE-led “growing” risks on the broader economy—and the markets, which President Donald Trump has always emphasized as a key barometer of his success.

66.5%. That’s the proportion of contract workers comprising the broader federal workforce which includes civil, military and postal workers, according to Brookings Institution analysis of data from 2023’s fiscal year. In 2002, contractors made up only 50.7% of the federal workforce.

More than 75,000 federal government employees voluntarily took a buyout, while layoffs that could affect up to 220,000 probationary workers have been carried out at agencies including the Internal Revenue Service and the Forest Service. Those layoffs are historically abnormal dating back to World War II, mirroring only what Bill Clinton did in shrinking Washington’s footprint. The economy is broadly strong, as unemployment was 4% in January and economic output grew at 2.3% during 2024’s fourth quarter, both in-line with historic norms. The largest amount of spending on federal contractors are at defense companies Lockheed Martin, RTX and General Dynamics, according to the System for Award Management, though non-defense firms including Dell, Deloitte, Microsoft and Pfizer also secured more than $1 billion in government contracts in 2023.

Steve Cohen, the billionaire founder of Point72 Asset Management, warned Friday about the prospect for a "significant correction” in the stock market, citing pessimism about Trump’s economic policies including strict immigration, tariffs and DOGE’s cost-cutting. Less federal spending “has got to be negative for the economy,” said Cohen.

The stock market has continued its strong two-year stretch since Trump won a second term, as the benchmark S&P 500 is up 3.6% since Election Day. Trump quickly took credit for the initial boost from his victory, ringing the opening bell of the New York Stock Exchange and boasting last month: “Since my election the stock market has set records. The S&P 500 index has broken above 6,000 points for the first time ever, not even close” (the index came within 2% of 6,000 the week before the election). But the S&P has actually declined since Trump took office last month, dropping about 0.3% Monday after sinking nearly 2% Friday as Wall Street turns risk averse. Though the president has less impact on stock market returns than Trump may suggest, how stocks perform loosely leads public perception of the president. Trump has a history of abandoning policies after sharply negative stock market reactions, most recently delaying tariffs on Canadian and Mexican imports after the S&P fell nearly 3% the day before the duties were set to go into effect. Unemployment rates are also important to Trump, who touted having “the best unemployment rates ever” ahead of the COVID-19 pandemic, which sent the jobless rate to a record 15%.

Higher unemployment tied to DOGE layoffs and potentially slower GDP growth tied to less government stimulus are not positives for financial markets, but that may be short-term pain before assets enjoy a prolonged bump from a more sustainable fiscal outlook, according to Morgan Stanley’s chief U.S. equity strategist Michael Wilson. DOGE’s efforts will temporarily hurt economic growth before sustainably lifting the economy, as the private sector grows and a healthier fiscal environment supports lower interest rates, Wilson wrote in a Monday note to clients. The $36.2 trillion national debt is double what it was in 2015 as yields for long-dated U.S. government bonds, a signal of wobbling investor faith in the sustainability of federal finances, have surged.