22 State Economies Are In or Near Recession, Alarming Report Finds

Twenty-two U.S. states are either on the brink of an economic recession or already in one, according to a new analysis from Moody's Analytics.

Moody's Chief Economist Mark Zandi shared the findings, saying that states making up nearly a third of the national gross domestic product are either in or at high risk of recession, with another third just holding steady, and the remaining third growing.

"State-level data makes it clear why the U.S. economy is on the edge of recession," wrote Zandi in a post on X.

Zandi noted that states experiencing recessions are spread across the country, but the area surrounding Washington, DC, stands out in particular, due to government job cuts and the potential impact of the federal government shutdown.

"Southern states are generally the strongest, but their growth is slowing," says Zandi. "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."

The new report follows concerning data about the national economy, with downward revisions to recent job growth numbers raising questions about the strength of the labor market.

The country added a paltry average of 27,000 new jobs monthly from May through August, according to the latest available Labor Department data.

With the government shutdown in effect, the Labor Department did not issue a jobs report for September as scheduled, leaving consumers, investors, and policymakers flying blind during a period of economic uncertainty.

Payroll data from ADP showed that private employers actually shed 32,000 jobs in September. However, the ADP report is not as comprehensive as the monthly government reports.

For the housing market, a national economic downturn would likely deliver lower mortgage rates, but that would benefit only homebuyers who felt confident their jobs and income would not be affected by recession.

Meanwhile, state-level economic slowdowns have the potential to affect their housing markets if fewer people are working and incomes suffer.

"Whether nationwide or localized, recessions are bad for housing markets," says Realtor.com® senior economist Jake Krimmel. "The direct effects of an economic slowdown are higher unemployment, less hiring, and lower wages—all killers for would-be homebuyers and all warning signs for current homeowners trying to make mortgage payments."

The indirect effects of a recession also have housing market implications, says Krimmel, by injecting higher uncertainty about the future, which can have knock-on effects for home prices and for sales.

"The silver lining in the case of Moody’s projections is that the states at highest risk, especially those located in the Northeast, happen to have the strongest housing markets right now," he notes.

Meanwhile, states with the softest housing markets, as measured by weak price growth and slow-moving inventory, such as Texas, Florida, and Arizona, are flagged by Moody's as having still-expanding economies, which could limit the downturn in housing there.

"As long as local economic fundamentals and housing markets don’t weaken simultaneously, a major economic downturn is unlikely," says Krimmel.