A third of US is already in a recession, another third is stagnating, warns Moody's chief economist

A third of US states are already under a recession or are at a high risk of one and the economy of another third has become stagnant, according to Mark Zandi, the Chief Economist at Moody’s Analytics.

Zandi has raised the odds of a nationwide recession in the wake of US President Donald Trump’s economic and trade policies.

While Trump’s tariffs are bound to raise inflation, his mass firing of government workers and cancellation of contracts has added to the national employment, and immigration crackdown has affected key industries are agriculture, food processing, and hospitality.

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In a post on X, Zandi on Monday said that states making up nearly a third of US GDP are either in or at high risk of recession another third are just holding steady, and the remaining third are growing.

Zandi further said, “States experiencing recessions are spread across the country, but the broader DC area stands out due to government job cuts. Southern states are generally the strongest, but their growth is slowing. 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.”

State-level data makes it clear why the U.S. economy is on the edge of recession. Based on my assessment of various data, states making up nearly a third of U.S. GDP are either in or at high risk of recession, another third are just holding steady, and the remaining third are… pic.twitter.com/DXPzn7GOrb

— Mark Zandi (@Markzandi) August 24, 2025

Moody’s raises recession forecast

Last week, Zandi said that Moody’s machine-learning-based leading recession indicator put the odds of a recession in the next 12 months at 49 per cent.

Zandi said that the US economy would be most vulnerable to recession toward the end of this year and early next year.

“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,” said Zandi.

Tax cuts-induced consumption surge and government spending on defence should help growth but that won’t come until next year, and the base case is that the economy avoids a recession “but not by much”, according to Zandi.

Beyond forecasts, the US economic downturn has been visible for months in hard data as inflation has risen and jobs growth has fallen.

Last month,
the inflation rose at the highest rate in six months as core inflation grew 3.1 per cent year-on-year. Job growth was also subpar, with 73,000 new non-farm jobs compared to 104,000 expected by economists, and the unemployment rate rose to 4.2 per cent from 4.1 per cent the month before.

The July jobs report also revised downward jobs data for May and June that laid bare the employment crisis.

The July jobs report lowered May’s new jobs to 19,000 from 144,000 and June’s new jobs to 14,000 from 147,000 initially reported.