Economic Growth Slows as Third of U.S. States Face Recession Risks
The U.S. economy stands on shaky ground, with significant portions of its largest states teetering on the brink of a recession. Mark Zandi, chief economist at Moody’s Analytics, highlighted growing concerns about the nation’s economic trajectory.
“Southern states are generally the strongest, but their growth is slowing,” Zandi stated. He emphasized that nearly a third of the states contributing to the U.S. GDP are either already in a recession or at high risk of entering one. Another third of the states are maintaining their current economic status, while the remaining third continues to expand.
Earlier this month, Zandi suggested that the United States is on the precipice of a recession. Expanding on this, he detailed his analysis based on various datasets indicating the precarious state of the economy across different regions.
In social media posts on Sunday, Zandi outlined that states making up nearly a third of the U.S. GDP are in recession or at high risk, another third are stable, and the final third are growing. He noted, “States experiencing recessions are spread across the country, but the broader D.C. area stands out due to government job cuts.” He added, “Southern states are generally the strongest, but their growth is slowing. California and New York, which together account for over a fifth of U.S. GDP, are holding their own, and their stability is crucial for the national economy to avoid a downturn.”
Currently, the Atlanta Fed’s GDP tracker indicates ongoing nationwide growth, though it is expected to decrease to 2.3% in the third quarter from 3% in the second quarter.
Here is the breakdown of states and one federal district:
- Recession/high risk (22): Wyoming, Montana, Minnesota, Mississippi, Kansas, Massachusetts, Washington, Georgia, New Hampshire, Maryland, Rhode Island, Illinois, Delaware, Virginia, Oregon, Connecticut, South Dakota, New Jersey, Maine, Iowa, West Virginia, District of Columbia*.
- Treading water (13): Missouri, Ohio, Hawaii, New Mexico, Alaska, New York, Vermont, Arkansas, California, Tennessee, Nevada, Colorado, Michigan.
- Expanding (16): South Carolina, Idaho, Texas, Oklahoma, North Carolina, Alabama, Kentucky, Florida, Nebraska, Indiana, Louisiana, North Dakota, Arizona, Pennsylvania, Utah, Wisconsin.
Last week, Zandi further clarified his forecast, revealing that Moody’s machine-learning-based leading recession indicator assigns a 49% probability of a downturn in the next 12 months. While anticipated tax cuts and increased government defense spending may bolster growth, these measures are not expected to take effect until the following year. Zandi posited that the economy might narrowly avoid a recession, stating, “The economy will be most vulnerable to recession toward the end of this year and early next year.”
He explained, “That is when the inflation fallout of the higher tariffs and restrictive immigration policy will peak, weighing heavily on real household incomes and thus consumer spending.” Zandi also cautioned that the economy could easily slip into a recession with minimal additional stress, such as a selloff in the Treasury bond market leading to a rise in long-term yields.
Furthermore, Zandi pointed out that more than half of industries are already shedding workers, a trend commonly associated with previous recessions. Recent payroll numbers showed that payrolls expanded by just 73,000 last month, significantly below the forecasted 100,000. Additionally, revisions to May and June’s payroll data reduced the gains to 19,000 and 14,000 respectively, averaging only 35,000 over the past three months.
Zandi indicated that if future revisions continue to show lower employment figures, it might suggest that employment is already decreasing. He noted, “Also telling is that employment is declining in many industries. In the past, if more than half the ≈400 industries in the payroll survey were shedding jobs, we were in a recession. In July, over 53% of industries were cutting jobs, and only health care was adding meaningfully to payrolls.”