One third of US states are already in recession or at a high risk of one, another third have fallen into stagnation, and the remaining states are still growing but at a slower pace, Chief Economist at Moody's Analytics Mark Zandi says.
Zandi identified President Donald Trump's economic and trade policies as principal culprits behind this risk of a downturn. Increased tariffs will drive up inflation, while mass firings by the federal government and the cancellation of federal contracts undermined job levels. In addition, Trump's immigration crackdown has damaged labour-intensive sectors like agriculture, food processing, and hospitality.
In an X post, Zandi clarified that states comprising almost a third of country GDP are already severely strained. "Recessions are widespread throughout the nation but are particularly pronounced in the DC area because of government job losses," he pointed out. Southern states are comparatively stronger, but their growth is starting to weaken. California and New York combined account for over 20 percent of US GDP and are holding firm something Zandi termed as crucial to preventing a national slump.
Moody's last week revised its predictions, increasing the chances of a national recession in the next 12 months to 49 percent, according to a machine-learning recession predictor. Zandi cautioned that the economy would be most at risk later this year and into early next year when the inflationary impacts of tariffs and immigration curbs would reach the household income and mitigate consumers' spending.
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Early signs are already present in the data. Inflation accelerated at its strongest rate in six months in July, with core inflation increasing 3.1 percent from a year earlier. Job creation was short of the forecasted level, with a mere 73,000 non-farm jobs created, down from the economists predicted 104,000. The unemployment rate also increased to 4.2 percent from 4.1 percent in June.
Contributing to the dismal picture, the July jobs report also trimmed hiring numbers for earlier months. The job growth in May was cut to a mere 19,000 from the originally announced 144,000, and June's was trimmed to 14,000 from 147,000. These trims highlighted what Zandi termed an emerging employment crisis, one that threatens to push the US into a deeper recession if trends persist.
