After saying that the U.S. is on the precipice of a recession earlier this month, Moody’s Analytics chief economist Mark Zandi continued to add more granularity to his warning.
In social media posts on Sunday, he said his assessments of various datasets indicate that states accounting for nearly a third of U.S. GDP are already in a recession or at high risk of slipping into one. Another third is treading water, while the last third is still expanding.
“States experiencing recessions are spread across the country, but the broader DC area stands out due to government job cuts,” Zandi 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.”
For now, the Atlanta Fed’s GDP tracker points to continued nationwide growth, though it’s expected to decelerate to 2.3% in the third quarter from 3% in the second quarter.
Here’s how the states—and one federal district(*)—break down:
- 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, lowa, 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 also put a finer point on his forecast. He said Moody’s machine-learning-based leading recession indicator put the odds of a downturn in the next 12 months at 49%.
While tax cuts and government spending on defense should help growth, that won’t come until next year. The base case is that the economy avoids a recession, “but not by much,” Zandi said.
“The economy will be most vulnerable to recession toward the end of this year and early next year,” he added. “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.”
With the economy facing many threats, it wouldn’t take much to push it into recession, Zandi said, singling out a selloff in the Treasury bond market that would send long-term yields soaring.
And before that, he pointed out that more than half of industries are already shedding workers, a sign that’s accompanied past recessions.
Payrolls expanded by just 73,000 last month, well below forecasts for about 100,000. Meanwhile, May’s tally was revised down from 144,000 to 19,000, and June’s total was slashed from 147,000 to just 14,000, meaning the average gain over the past three months is now only 35,000.
Because recent revisions have been consistently much lower, Zandi said he wouldn’t be surprised if subsequent revisions show that employment is already declining.
“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,” he explained. “In July, over 53% of industries were cutting jobs, and only health care was adding meaningfully to payrolls.”
