Mark Zandi Warns of Potential U.S. Recession as Economic Growth Slows
Concerns are mounting about the U.S. economy’s stability as Moody’s Analytics chief economist Mark Zandi flags the nation on the brink of a recession. His latest analysis reveals that a significant portion of states contributing to the country’s GDP face recessionary pressures.
Economic Risk Unevenly Distributed Across States
Mark Zandi highlighted that nearly one-third of states, representing almost a third of the U.S. GDP, are either currently in a recession or at substantial risk of entering one. Another third of the states are maintaining steady economic activity, while the remaining third continue to grow. He emphasized, “States experiencing recessions are spread across the country, but the broader D.C. area stands out due to government job cuts.”
The precipice of a recession was a term Zandi used earlier this month to describe the fragile state of the economy. In recent social media posts on Sunday, he provided a more detailed breakdown of the economic landscape.
Southern states, while typically robust, are experiencing a slowdown in growth. California and New York, collectively accounting for over a fifth of the U.S. GDP, remain stable, making their economic health crucial to preventing a national downturn. 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 Atlanta Fed’s GDP tracker indicates that while nationwide growth is expected to continue, it will likely slow to 2.3% in the third quarter from 3% in the second quarter.
According to Zandi, his machine-learning-based leading recession indicator assesses a 49% probability of a downturn in the next 12 months. He notes that although tax cuts and increased government defense spending could bolster growth, these effects might not be felt until the following year. “The economy will be most vulnerable to recession toward the end of this year and early next year,” Zandi explained. “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.”
Potential triggers for a recession include a significant selloff in the Treasury bond market, which could drive long-term yields higher. Additionally, Zandi pointed out that more than half of industries are already shedding workers, a trend commonly associated with impending recessions.
Recent employment data reinforces these concerns. Payrolls expanded by just 73,000 last month, falling short of the forecasted 100,000 jobs. Moreover, May’s job additions were revised downward from 144,000 to 19,000, and June’s from 147,000 to 14,000, resulting in an average monthly gain of only 35,000 over the past three months. Zandi remarked, “Also telling is that employment is declining in many industries. In the past, if more than half the ≈400 industries in the payroll survey were shedding jobs, we were in a recession. In July, over 53% of industries were cutting jobs, and only health care was adding meaningfully to payrolls.”
