For decades, the Washington-area economy has been considered “recession-proof” due to the size and scope of the federal workforce in and around the District of Columbia. But multiple economic indicators suggest the label could be slipping.

Unemployment is rising, and payrolls are shrinking in the public and private sectors. This follows federal layoffs and the federal takeover of the Metropolitan Police Department in President Donald Trump’s second, nonconsecutive term.

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A review of the most recent District of Columbia Economic and Revenue Trends revealed that the seasonally adjusted unemployment rate stood at 6.2% in June. The data, which cover the city limits, were released by the Bureau of Labor Statistics and the D.C. Office of Revenue Analysis, a spike from 5% in December 2024.

The Washington metropolitan area’s unemployment rate, which includes Charles and Prince George’s counties in Maryland, was reported at 5.1% for July, up from 3.2% last December.

By comparison, the national unemployment rate was 4.4%, relatively unchanged from last year.

While the district’s unemployment rate typically runs higher than the national average, the latest numbers show declines in major industries. Public-sector employment dropped 2.4% over the past year, mostly due to a 3.1% cut in the federal workforce. Federal agencies cut 6,000 jobs between 2024 and 2025, even though the district’s government added 300 jobs.

The private sector experienced a slight drop, declining from 534,600 workers to 533,200 workers. Business services and retail trade took the major hits, seeing declines of 7.8% and 4.5%, respectively.

These figures have put the business community in a grim mood.

As Trump returned to the White House, 55% of business owners told the D.C. Policy Center that they believed the local economy would be fine. This included 23% who said business activity would increase within city limits. More than 40% expressed worry about how Trump’s policies could affect the district.

It was a very different story months later.

The D.C. Policy Center’s most recent Quarterly Business Sentiments Survey, released in June, found that 80% of the 268 business owners polled believed the city’s economy would weaken in the next six months. Half of those believed the business environment would be much weaker. About 20% said the economy would grow or remain steady.

“It’s completely predictable from the fact that a huge swath of the federal government, which is our most central employer, has been shutting down and laying people off,” Miguel Trindade Deramo, president of Advisory Neighborhood Commission 1B, told the Washington Examiner. ANCs advise the city government on regulations, including economic development, police protection, zoning, and liquor licenses.

More importantly, business owners have started seeing lower profits. The survey found 37% of shops and stores experienced declining revenues, up 12 percentage points from the start of the year.

Economists say none of this should be surprising given Washington’s reliance on federal activity.

“The pandemic reduced working within central D.C. and tourism,” said Ryan Bourne at the Cato Institute. “And now there have been meaningful cutbacks in federal employment, which will have effects that ripple through D.C.’s economy.”

What troubled the district’s politicians and business leaders was the White House decision to take over the Metropolitan Police Department. They believe that policy is shaping consumer behavior.

Trump federalized the MPD in early August, saying crime was out of control.

Two weeks later, Mayor Muriel Bowser said the federalization has led to an 87% drop in carjackings. But she criticized the use of Immigration and Customs Enforcement agents and National Guard members and said it makes residents feel uneasy.

“There’s tremendous anxiety in the district,” Bowser said.

Neighborhood businesses warn that fear is keeping people from spending money.

One liquor store owner in the Chinatown neighborhood told Fox News Digital that he felt safer but that his sales had fallen roughly 30% to 40% since the federalization was announced in August.

“There’s nobody around, and people are scared,” the owner said. “They don’t want to be hassled, so they stay home. It hurts my business big time.”

Business groups have started shifting strategies in hopes of getting back customers.

Destination DC, the nonprofit organization supporting the district’s travel and tourism sector, announced a social media campaign meant to inspire possible international travelers. They estimated a 5.1% decrease in international visitation this year but promised it was better than other parts of the country.

Hotel performance data from CoStar put hotel occupancy in the district at 64.3%, a week after the police takeover, down 2 points from 2024.

That softening could be credited to the federal layoffs and Congress not being in session, according to Skift, a travel news agency.

At the same time, some of the problems seem to be overstated.

A week after Trump’s crime crackdown was announced, OpenTable data showed a 24% decline in year-over-year restaurant reservations. Bourne cautioned against reading too much into the numbers, noting the 2024 numbers were elevated due to Restaurant Week.

“This year, Restaurant Week started a week later, and numbers have been much stronger again since that started,” Bourne said. “So, it doesn’t look like there’s been a big effect of the police takeover either way.”

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This year, Restaurant Week was extended an extra week. Restaurant Association Metropolitan Washington officials said the decision wasn’t political but aimed at supporting small businesses and workers. They also said it would help people realize that the district was safe and open for business, no matter who is in the White House.

Even with the efforts to help ease fear among residents and tourists, a sense of nervousness lingers about the long-term future — particularly if the crime crackdown continues through the fall.

Taylor Millard is a freelance journalist who lives in Virginia.