U.S. Economy Faces Recession Risk Amid Slowing Growth, Warns Mark Zandi
The United States is teetering on the edge of a recession, according to Mark Zandi, chief economist at Moody’s Analytics. His recent findings suggest that a notable segment of the states contributing to the U.S. GDP are under recessionary strain.
Disparities in Economic Risk Across the Nation
Zandi pointed out that nearly one-third of U.S. states, which account for almost a third of the nation’s GDP, are either in a recession or at high risk of entering one. Meanwhile, another third of the states maintain steady economic performance, and the rest continue to experience growth. “States experiencing recessions are spread across the country, but the broader D.C. area stands out due to government job cuts,” he noted.
The term precipice of a recession was previously used by Zandi to describe the delicate economic situation. In more recent social media updates, he detailed the economic scenario further.
Traditionally resilient southern states are witnessing a deceleration in growth. Conversely, California and New York, responsible for over a fifth of the U.S. GDP, remain stable, making their economic stability vital to stave off a national recession. 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.
According to the Atlanta Fed’s GDP tracker, national growth is projected to continue but at a reduced rate, slowing from 3% in the second quarter to 2.3% in the third quarter.
Zandi’s machine-learning-based recession indicator suggests a 49% likelihood of a recession within the next year. While tax cuts and increased government defense spending might boost growth, these benefits could be delayed until the next year. “The economy will be most vulnerable to recession toward the end of this year and early next year,” Zandi 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.”
Possible recession triggers include a major selloff in the Treasury bond market, potentially driving long-term yields higher. Additionally, Zandi noted that over half of industries are already cutting jobs, a pattern often seen before recessions.
Recent employment statistics support these concerns. Payrolls grew by only 73,000 last month, below the expected 100,000 jobs. Additionally, job gains in May were revised from 144,000 to 19,000, and June’s from 147,000 to 14,000, leading to an average monthly increase of just 35,000 over the last three months. Zandi remarked, “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.”
