A new analysis from Mark Zandi, chief economist at Moody's Analytics, reveals that 22 U.S. states are either already in recession or teetering dangerously close to one, highlighting growing regional vulnerabilities in the national economy.
Why This Signals Alarm
These struggling states span the nation—from Washington and Virginia on the coasts to Maine in the Northeast—and collectively account for roughly one-third of the country's total GDP. Zandi attributes their woes primarily to a potent cocktail of factors: decelerating immigration, escalating tariffs, and sharp reductions in federal employment.
The assessment draws on data up to the end of August, making it especially timely as the ongoing federal government shutdown obscures fresh economic indicators. "This snapshot gives us a clearer view before the data blackout," Zandi notes.
The Methodology Behind the Index
Zandi developed a custom index to gauge state-level economic health, mirroring the approach of the National Bureau of Economic Research's (NBER) eight-member Business Cycle Dating Committee, which officially declares recessions. Key components include state jobs figures, alongside modeled estimates for industrial production, personal income, and housing starts.
"Employment is the heavyweight champion here," Zandi explains to Axios, "but it's far from the only contender—we layer in multiple signals for a fuller picture."
Decoding the Rankings
States scoring negative on the index were classified as in recession, while others fell into "expanding" or "treading water" buckets. Zandi applied some expert discretion, factoring in ancillary metrics like credit card delinquency trends, consumer credit scores, port throughput, and population migration patterns.
A Dose of Perspective
This evaluation, like the NBER's recession determinations, involves inherent subjectivity—here, distilled through one economist's lens. Nationally, the economy remains out of recession territory, with August's unemployment rate holding steady at a modest 4.3%.
Broader Implications
The hardest-hit states lean heavily on agriculture and manufacturing, sectors hypersensitive to tariff hikes that disrupt trade flows. Immigration restrictions are further stifling expansion by curbing labor supply in these industries.
Federal workforce reductions are amplifying pain in areas like Virginia and Maryland, with Washington, D.C., logging a stark 6% unemployment rate in August—the nation's steepest.
Spotlight on the Recession Roster
- **Iowa**: Trade war fallout has battered farmers, though its 3.8% unemployment rate beats the national 4.3% benchmark.
- **Kansas and South Dakota**: Heightened agricultural vulnerabilities leave them exposed.
- **Georgia, Illinois, and Oregon**: Oversized manufacturing footprints make them tariff targets.
In contrast, states like Texas and Florida are bucking the trend, fueled by strong population inflows that sustain demand and growth.
Eyes on the Swing States
New York and California, both hovering in the "treading water" zone, could tip the scales for the entire U.S. economy. For now, a surging stock market is propping up affluent households in these high-wealth locales.
California's jobless rate sits at 5.5%—the country's second-worst and stagnant year-over-year—while New York's 4% edges just below the national average. "If these two falter, the whole nation follows suit into recession," Zandi warns.
The Takeaway
Zandi's verdict isn't a death knell for the economy but a flashing yellow light: "We're not in recession yet, but we're perilously near the brink." As regional fractures deepen, policymakers face mounting pressure to address trade barriers, immigration policy, and federal spending to avert a wider collapse.