The US economy is on the verge of entering a damaging contraction, and many states are witnessing recession already, according to a report by MarketWatch citing Moody Analytics chief economist Mark Zandi.
Zandi estimates that 22 states, along with the District of Columbia, are currently facing ongoing economic weakness and job losses, which are likely to persist.
“The economy is still not in recession, but the risks are very high. We’re on the precipice,” Zandi said in an interview.
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California and New York are currently struggling to maintain stability. If either state falters, it could push the economy into a recession, Zandi said.
This week, UCLA Anderson School of Management issued a separate forecast suggesting that a recession in California is now a possibility.
A common feature of recession-affected states is weak farm economies or struggling light manufacturing. Zandi said any region reliant on goods-producing sectors, including agriculture, mining, and light manufacturing, is currently weak, adding that an ailing transportation sector is worsening the downturn.
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Zandi expressed surprise that Georgia is currently in a recession, noting that the state has experienced a notable decline in domestic immigration, partly due to high home prices.
Pennsylvania, on the other hand, is unexpectedly performing well, he noted, due to its strengths in education and healthcare.
What led to a weak economy?
Zandi states that the economic policy is the reason for the weakness.
President Donald Trump’s tariffs on imported goods have created uncertainty, leading companies to halt expansion plans and disrupt supply chains. Additionally, the lack of labour-force growth this year has negatively impacted the economy.
Furthermore, federal job reductions associated with the Trump administration’s Department of Government Efficiency, formerly headed by Elon Musk, have caused Washington, DC, and nearby states to experience the most severe downturn of any region.
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According to the National Bureau of Economic Research (NBER), a recession is a substantial decline in economic activity that affects the entire economy and persists for more than a few months.
The organisation emphasises several key indicators, such as nonfarm payroll employment, inflation-adjusted personal income excluding transfers, inflation-adjusted consumer spending, and industrial production.
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Zandi acknowledged that similar data is not available for state economies. He mentions attempting to replicate the NBER’s approach, though his conclusions involve considerable judgment. While he has advised congressional Democrats on policy, he describes himself as an independent. He previously served as a top adviser to the late Republican Sen. John McCain during his presidential campaign.
The prevailing narrative among economists is that the U.S. economy’s expansion will continue, driven by consumer spending.