These two states could decide if the US hits recession, warns Moody’s top economist

New York and California may be the final line between a stalled economy and a full-blown recession, according to Moody’s Analytics chief economist Mark Zandi.

Zandi, who has been warning for months that the U.S. is nearing a downturn, says the economic fate of the country’s two largest state economies could “tip the balance” for the nation.

“These two are kind of battling to a draw at this point,” Zandi said, citing opposing forces of economic headwinds and tech-driven growth. “They have pretty powerful headwinds to growth, but they also have some powerful tailwinds.”

In Zandi’s latest analysis, New York and California are “treading water,” while other states have already slipped into localized recessions. The key concern: both states rely heavily on globalization and free trade. With rising tariffs, tighter immigration policies, and the broader trend of de-globalization, both face structural challenges.

“They’re struggling with the headwinds created by the higher tariffs and highly restrictive immigration policy,” Zandi said in comments to Business Insider. But the states are also benefiting from AI investment booms and surging stock markets, which boost consumer spending among high-income households.

California’s tech sector, vulnerable to layoffs, poses a potential risk to its job market. Still, Zandi notes that other sectors, like healthcare and education, are absorbing some of the slack.

While a federal government shutdown has delayed key economic data releases, Zandi is turning to state-level indicators—such as regional Fed surveys, credit and delinquency data from Equifax, house prices, and labor flows—to track conditions.

In August, Zandi said the U.S. was on the brink of recession. By September, he said the situation had “deteriorated further.” Now, all eyes are on New York and California.

“As Ohio goes, so goes the nation,” may no longer hold. In today’s economy, the real bellwethers may be on the coasts.