Richmond Fed brief: federal hiring, contracts and tariffs pose mixed risks to Virginia economy

Senator L. Louise Lucas, chair of the special joint subcommittee on federal impact of resources, convened the panel in Richmond for a briefing from Sonia Waddell of the Federal Reserve Bank of Richmond on how federal workforce changes, contract spending and trade policy may affect Virginia.

Waddell told the subcommittee the national economy has remained "remarkably resilient" even as some indicators show moderation, and she cited the Federal Open Market Committee median projection of 1.7% GDP growth for 2025 as a baseline. She said payroll employment gains have slowed toward levels that more closely match working‑age population growth and that some high‑frequency indicators show softening in hiring and retail activity.

The presentation focused on three channels by which federal actions could affect Virginia: direct federal employment and federal contractor activity, federal grants and transfers to state and local governments, and broader national policy risks such as tariffs that affect trade and supply chains. Waddell emphasized that the structure of Virginia’s economy — notably large federal employment and high federal contract receipts concentrated in Northern Virginia and Hampton Roads — makes the Commonwealth sensitive to changes in federal hiring and contracting.

On employment, Waddell noted that payroll data showed February national payrolls increased by about 151,000 jobs and January by about 125,000, but she also said February included a reported reduction of roughly 10,000 federal government positions tied to a hiring freeze. She described a normalization from the 2022–23 tight labor market: job postings and voluntary quits have moved back toward more typical pre‑pandemic levels.

Waddell walked committee members through regional patterns in the Federal Reserve’s Fifth District (North Carolina, South Carolina, Virginia, Maryland, West Virginia, and the District of Columbia). She said Northern Virginia counties account for the largest counts of civilian federal workers in the state, while some smaller counties have a high share of employment tied to the federal government. She warned that a contraction in federal spending or workforce could hit particular localities unevenly.

The presentation also examined unemployment insurance filings specific to federal employees (UCFE). Waddell reported that initial UCFE claims and continuing UCFE claims increased in recent weeks and that the DC, Maryland, and Virginia areas showed elevated UCFE continuing claims relative to historical norms; she said the UCFE initial‑claims figure she was tracking was roughly 564 (approximate). She noted that UCFE and state UI data differ by whether claims are filed by place of work or place of residence and urged subcommittee members to consider both measures when assessing local impacts.

On inflation and demand, Waddell reviewed the Federal Reserve’s preferred inflation gauge (personal consumption expenditures) and the recent path of core goods, services and housing costs. She said goods price pressures had eased but services — especially rents and other housing‑related measures — remained an area to watch. Waddell added that firms’ and consumers’ sentiment measures had fallen in recent months, with firms citing trade and tariffs, inflation and heightened uncertainty as top concerns in a quarterly CFO survey.

Tariffs and trade risk drew sustained attention from senators. Waddell said the Richmond Fed has been focusing primarily on import tariff exposure so far and has published briefs showing effective tariff rates by industry and county. She acknowledged the committee’s concern about retaliatory tariffs that could reduce demand for Virginia exports such as agricultural products, parts manufactured outside metropolitan centers, and goods shipped from the Port of Virginia, and she said the Fed’s regional outreach and county‑level analysis could be expanded to study export vulnerability.

Committee members asked technical questions about data definitions: payroll employment (payroll records reported by employers), the household unemployment rate (place of residence survey), and unemployment‑insurance filings (filed with the agency for the place of work). Waddell recommended using multiple data sources — Office of Personnel Management payroll counts by place of work, American Community Survey residence measures, and weekly UCFE/UI filings — to develop a fuller picture.

Lucas closed the meeting by directing staff to continue support for the subcommittee’s analysis and announced the next meeting for May 20 in Northern Virginia. No formal actions or votes were taken at the session.

For committee review, Waddell provided a mix of national and regionally disaggregated indicators and offered to return with deeper county‑level and industry analyses on federal contracts, UCFE claims and export exposure.