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Has Government Hiring Quietly Powered the U.S. Job Market?  

• Recent data suggests government hiring has played an outsized role in job growth - helping to boost employment, but also contributing to rising deficits and inflation. 
  
  
• With potential federal job cuts on the horizon, the economy may be facing a decline with slower growth, cooling inflation, and a rise in unemployment.

What you need to know: Over the past two years, government hiring has surged, accounting for a much larger share of total job creation than at any point in recent history. 

Why it matters: As of February 2025, U.S. government payrolls have risen to 24 million workers, a 9.1% increase from 2022¹. This surge has likely bolstered job numbers, expanded the federal deficit, and contributed to inflation and economic growth. However, with federal job cuts now on the table, the economy could face the opposite via higher unemployment, a shrinking deficit, and slower growth.

Now the Deep Dive: I know I’ve flagged this before, but the latest data makes it hard to ignore - government hiring has been a major driver of U.S. job growth over the past two years.

To put this into perspective – according to Apollo²:

• Between 2016 and 2022, government jobs made up just 7.6% of new job creation - about 1 in 13.
  
  
• But since 2023, that number has jumped to 26% - which is about 1 in 4 new jobs and over three times the previous average.

This is an enormous increase – and I believe has helped drive three other trends:

1. Government hiring artificially lowers unemployment – because when the government expands its workforce, it makes the job market look stronger than it might actually be.
   
   
2. Government jobs are funded by taxpayer dollars or deficit spending - which means higher taxes, more debt, or monetizing the debt (aka “printing money”).
   
   
3. When the government hires people, it puts money into their hands - which they then spend on things like groceries, gas, and services. That spending helps businesses make more money, which can boost the economy and keep the cycle going.

There’s an old saying, “Want zero unemployment? Start a draft!”

Sure, the numbers would look great, but that wouldn’t mean a strong private-sector economy.

Now, with proposed federal job cuts on the table, the dynamic could flip:

• Shrinking deficits
• Rising unemployment
• Slower growth, easing inflation

For two years, government hiring helped buoy the economy. And if that trend reverses, the ripple effects could be just as large.

Worth keeping an eye on.

Figure 1: BLS, Haver Analytics, Apollo Chief Economist, 2025

Credit Crunched: More Americans Fear Rejection as Borrowing Gets Tougher 

• A record 8.5% of consumers are skipping credit applications due to fear of rejection, as banks tighten lending across mortgages, auto loans, and credit cards. 
  
  
• With fewer borrowing options and shrinking emergency savings, households may be forced to sell assets or cut spending, raising the risk of a deeper economic slowdown.

What you need to know: According to the New York Federal Reserve, a growing share of U.S. consumers are forgoing loan applications due to expectations of rejection, with the discouraged borrower rate hitting a record 8.5% amid tighter credit conditions – the highest ever recorded. 

Why it matters: The data highlights that many Americans are feeling financially squeezed, A slowing job market is keeping wage growth in check, while high borrowing costs make it tougher to cover bills and stay on top of debt payments. Delinquency rates, though still below pre-pandemic levels, are steadily climbing - hitting their highest point in nearly five years³. As more borrowers fall behind, lenders are growing more cautious, tightening credit and raising the bar for new loans, reinforcing the negative outlook.  

Now the Deep Dive: With how addicted the global economy has been to credit since the 1980s, it’s important to monitor debt markets.

And right now – according to the New York Federal Reserve’s latest “Survey of Consumer Expectation⁴” - U.S. households are showing some worrying fragility in this regard. . .

Rising Borrower Discouragement:

• A record 8.5% of consumers skipped applying for credit, fearing rejection.
  
  
• Meanwhile, rejection rates by banks are climbing across credit cards, home loans, and auto loans.

Tighter Credit Conditions:

• One-third of auto loan applicants expect to be denied - the highest on record.
  
  
• Nearly half of all consumers believe credit will be even harder to get next year.

Mortgage Refinance Rejections Explode:

• More than 40% of homeowners seeking to refinance were rejected in February – that’s 4x higher than in October 2023.
  
  
• With mortgage rates still high, many homeowners looking to refinance are likely trying to tap into home equity - not to lower payments - to cover other debts or expenses. If they can’t, some may face pressure to sell.

Emergency Savings Are Depleting:

• The share of consumers that can come up with $2,000 in case of a sudden emergency dropped to 63% - the lowest on record.

Remember - credit fuels demand. When wages fall short, debt fills the gap, allowing people to spend beyond their means. That’s why watching debt markets and lending trends matter.

Thus, if borrowing tightens and households are forced to cut back or sell assets to manage debts, we risk a debt deflation spiral – aka dumping assets to raise cash to pay off debts causes falling prices, which increases the real burden of debt, leading to reduced spending, lower incomes, and a worsening economic downturn.

• For more context - I wrote more on this debt deflation threat last year in “Credit Hangover? Why Rising Delinquencies May Challenge the "Soft Landing" Narrative”

I’ll keep you posted on what comes next. 

Figure 2: Bloomberg, March 2025 

Markets on Edge: Surging Global Uncertainty and the Hidden Opportunities It May Create

• Economic uncertainty is surging, with trade tensions threatening higher prices, weaker corporate profits, and slowing investment.
  
  
• While uncertainty breeds volatility, history shows it also creates opportunities - markets overreact, and those who stay sharp can capitalize on mispriced assets. 

What you need to know:  In January, the Global Economic Policy Uncertainty Index jumped to 428.9 - nearing COVID-19 highs - and signals heightened uncertainty in government policy and economic outlook⁵. 

Why this matters: This index tracks uncertainty using a mix of media coverage, tax and regulatory changes, and economic forecasts to assess how unclear or unpredictable economic policy is at a given time. The main culprit for this current cycle of uncertainty is the brewing trade wars - threatening higher prices on goods from groceries to automobiles, which could strain households and businesses around the world. While uncertainty fuels volatility, it also creates opportunities - markets often overreact, leading to mispriced assets and long-term investment openings for those who are willing to take advantage of the turmoil. 

Now the Deep Dive: The recent surge in the Global Economic Policy Uncertainty Index got me thinking about two critical things:

1. Markets hate uncertainty - when uncertainty spikes, pessimism and volatility often follow. But contrarian investors know that fear-driven selloffs can create steep discounts and undervalued assets, rewarding those who move against the herd.
   
   
2. Uncertainty paralyzes businesses and households. When companies get nervous, they freeze - hiring slows, expansion halts, and investment stalls. Households do the same, saving more (which really means spending less), feeding into weaker corporate profits and amplifying uncertainty in a self-reinforcing cycle.

Put simply, uncertainty shakes things up.

But here’s the silver lining - it’s always cyclical.

I said this last year, and I’ll say it again: Volatility plants the seeds for stability, just like bad times eventually set up good times.

Fear, uncertainty, and panic don’t last forever - eventually, markets stop overreacting, uncertainty fades, and risk-taking comes back. Meanwhile, as things settle, people will begin spending again, and corporations will have an idea of what comes next so they will invest and hire – fueling growth.

And then? Complacency returns, breeding the next round of volatility – and the cycle repeats. Almost like clockwork.

Still not convinced? Just look at the chart below - uncertainty always spikes, then reverts. Whether it was the DotCom bust in the 1990s, the 2008 financial crisis, the 2012 eurozone crisis, or COVID-19, the pattern remains the same - fear surges, markets panic, and then, inevitably, things stabilize.

So, will there be more chaos ahead? Probably.

But at some point, it’ll shake everyone up just enough that things reset, and things get back to “normal”.

Stay sharp and watch for opportunities.

The black swans are lurking.

Figure 3: Visual Capitalist, March 2025

Anyway, who knows what will happen?

This is Just some food for thought as we watch how these trends develop.

As always, we’ll be keeping a close eye on things. Enjoy the rest of your weekend.

Sources:

1. US Government Payrolls Monthly Analysis: Employment Situation | YCharts
2. The Daily Spark - Apollo Academy
3. US Consumer Debt Delinquency Hits Highest in Almost Five Years - Bloomberg
4. SCE Credit Access Survey - FEDERAL RESERVE BANK of NEW YORK
5. Charted: Global Economic Policy Uncertainty (1997-2025)

Disclosures:

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