US Recession Chances Hinge on California, New York, Economist Warns
Economists are warning that the fate of California and New York’s economy could determine whether the entire country is able to avoid—or slips into—a recession.
“I do think we’re on shaky ground here,” Scott Anderson, chief U.S. economist at BMO Capital Markets told MarketWatch in a recent interview, adding that the two economies could prove to be the “canaries in the coal mine.”
“Which way California and New York go may be the way the nation goes,” he continued.
Why It Matters
While fears over an imminent recession have somewhat abated thanks to stronger-than-anticipated gross domestic product (GDP) growth in the second quarter of 2025, economists and consumers remain concerned that the economy is fragile and that tariffs, inflation and a weakened labor market could continue to weigh on the country’s economic outlook.
What To Know
Anderson’s comments follow an analysis from Mark Zandi, chief economist at Moody’s Analytics, who in August found that 21 states and Washington, D.C. were currently in, or at high risk, of a recession. Zandi told Newsweek that the list was “a subjective assessment based on various coincident measures of economic activity,” including payroll employment and industrial production.
In his analysis, Zandi said that California and New York were “holding their own” and “treading water,” but told Newsweek in a subsequent interview that the fate of the these states, given their economic might, “may decide what happens to the nation.”
“I mean, if California and New York weaken and start to contract, the national economy is going to go into recession,” he said. “And if those economies hold their own or start to accelerate or reaccelerate, the economy is going to be fine and get through without recession.”
Zandi echoed this statement in a recent interview with Fortune, and said that the two economies’ own trajectories could depend on the continued success of Wall Street as well as California’s tech sector.
Almost every state saw its GDP rise in the second quarter of 2025, according to the Bureau of Economic Analysis (BEA), including California and New York. While the conventional definition of a recession is two quarters of GDP contraction, Zandi told Newsweek that his definition is closer to that employed by the National Bureau of Economic Research as “a broad-based persistent decline in economic activity” marked by, among other things, weakening job growth.
While official data on job growth has been delayed due to the ongoing government shutdown, Zandi said his analysis of private data sources pointed to another weak period for the labor market, and told Newsweek that a loss of 4,000 jobs during September appeared “plausible.”
What People Are Saying
Mark Zandi told Newsweek this week: “The job market is sputtering, as job growth has come to a standstill. Abstracting from the vagaries of the monthly data, monthly job growth is close to zero, give or take.”
“Higher tariffs and highly restrictive immigration policies are weighing on the job market. These policies create uncertainty for businesses, weaken labor demand, and limit labor supply, all of which have caused businesses to curtail their hiring,” he added. “Fortunately, businesses have not turned to layoffs, as low layoffs is the firewall between a weak economy and a recession.”
What Happens Next
The BEA is scheduled to release its first estimates for GDP growth in the third quarter later this month, after determining that the economy grew by 3.8 percent for the second quarter, and TradingEconomics projects 1 percent growth at an annual rate.