Third of US GDP already in downturn or high-risk zone, economist says
A significant portion of the United States economy is either experiencing recession conditions or faces immediate risk of entering one, according to new analysis from Moody’s Analytics. Chief economist Mark Zandi warned that states representing nearly one-third of US gross domestic product are already in recession or at high risk of slipping into economic decline.
The assessment reveals a divided national economy, with another third of states “treading water” in stagnant conditions while the remaining third continues to expand, Fortune reported. This mixed picture emerges as economists closely monitor employment data and regional economic indicators for signs of broader downturn.
Regional patterns emerge across states
“States experiencing recessions are spread across the country, but the broader DC area stands out due to government job cuts,” Zandi said in social media posts. The analysis identified 22 states and the District of Columbia as either in recession or facing high risk, including major economies like Massachusetts, Washington, Georgia, Illinois, Virginia, and New Jersey.
Thirteen states find themselves in stagnant conditions, including economic powerhouses New York and California. “California and New York, which together account for over a fifth of US GDP, are holding their own, and their stability is crucial for the national economy to avoid a downturn,” Zandi noted.
The strongest performance appears concentrated in the South, with 16 states continuing expansion, including Texas, Florida, North Carolina, and South Carolina. However, Zandi cautioned that “Southern states are generally the strongest, but their growth is slowing.”
Employment data raises concerns
Recent employment figures have intensified recession fears. Payroll expansion reached only 73,000 jobs last month, falling short of forecasts for approximately 100,000 new positions. More troubling for economists, previous months saw significant downward revisions, with May’s initial count of 144,000 jobs revised down to just 19,000, and June’s figure slashed from 147,000 to 14,000.
The three-month average job gain now stands at only 35,000 positions, a figure that has historically preceded economic downturns. Zandi pointed to industry-wide job losses as another warning signal, explaining that “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,” Zandi said.
Recession odds near 50-50
Moody’s machine-learning-based recession indicator places the probability of economic downturn in the next 12 months at 49%. The analysis suggests the economy faces greatest vulnerability “toward the end of this year and early next year,” when inflation impacts from trade policies and immigration restrictions could peak.
Despite the warning signs, current national indicators show continued growth. The Atlanta Federal Reserve’s GDP tracker projects 2.3% growth in the third quarter, down from 3% in the second quarter, suggesting deceleration rather than contraction.
However, Zandi warned that multiple economic threats could easily push the nation into recession, particularly a potential selloff in Treasury bond markets that would drive long-term interest rates higher. The economist noted that with the economy facing numerous challenges, it would require relatively little additional pressure to trigger a broader downturn.
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