President Barack Obama’s dire warnings that the across-the-board sequester cuts would spawn massive unemployment—losses of up to 750,000 jobs—were exaggerated, say top economists.
UBS projects federal payrolls will decline 100,000 annually.
"The major flaw in sequester-related government job loss estimates is that they typically are generated by simply dividing spending cuts by average wages and salaries for federal workers," said UBS-New York Chief Economist Maury Harris. "However, the sequester instead is being implemented primarily through furloughs entailing one- or two-day drops in the monthly workweek per worker. Such furloughs spread the pain and do not entail major headcount cuts."
Obama’s 750,000 job loss estimate was based on Congressional Budget Office (CBO) projections.
"You won't see a 700,000 hit to payrolls because of sequestration, we think you will see a hit to hours worked, that will decline," said Standish Mellon Asset Management Global Macro Strategist Tom Higgins.
BNP Paribas Economist Laura Rosner said they project job cuts may be slightly above 300,000.
During the sequestration battle, the White House released dramatic state-by-state impact estimates detailing the apocalyptic effects of trimming $85 billion—a figure representing just 0.5% of the national debt—in federal spending. The numbers included figures purporting to show “decrease in victims served” by the STOP Violence Against Women Program, “decreased number of children receiving vaccines,” and even “decrease in number of HIV tests” administered.
“It’s important to understand why the sequester is going to go into effect,” said Obama senior adviser Dan Pfeiffer during the sequester battle. “The Republicans are making a policy choice that these cuts are better for the economy than eliminating loopholes that benefit the wealthy.”