A Divided Economy
Nearly half of all U.S. states are now either in recession or teetering on the edge, according to Moody’s Analytics chief economist Mark Zandi. While national figures may still show slow growth, the picture at the state level tells a very different story — one of deep regional inequality and growing economic strain.
Zandi describes the situation bluntly: “Roughly half of the country is hanging on by its fingertips.”
His analysis paints an increasingly fragmented national economy, where some states are still expanding, while others are shrinking under the weight of inflation, high interest rates, and weakening job markets.
The Numbers Behind the Warning
Moody’s internal index of state-level economic conditions shows that:
- Around 22 states are already contracting, meeting the technical definition of a localized recession.
- Another dozen or so are stagnating, showing little or no growth.
- Only about a third of states continue to see moderate expansion.
This uneven performance highlights a major vulnerability: while the U.S. as a whole may avoid a broad recession for now, large parts of the economy are already there.
Where the Pain Is Deepest
States most exposed to manufacturing, agriculture, and resource extraction are suffering the sharpest declines. These regions have been hit hard by higher borrowing costs, weak global demand, and lingering supply-chain disruptions.
Energy-producing states face added volatility from shifting oil prices, while industrial states in the Midwest are grappling with factory slowdowns and job cuts.
Meanwhile, coastal states with strong technology, financial, and service sectors — particularly in the Northeast and West — continue to post modest growth. But even those economies are slowing as consumer spending cools and corporate hiring freezes spread.
The Fragility Behind the Facade
At the national level, GDP growth remains positive, but just barely. Employment has plateaued, job openings are down, and consumer confidence has weakened. Many households have exhausted savings accumulated during the pandemic, while rising debt payments are eating into disposable income.
According to Zandi, these pressures are combining to create what he calls a “recession in slow motion.”
It’s not one dramatic collapse, but a steady erosion of growth, industry by industry, state by state.
Regional Inequality Worsens
The split between thriving and struggling states is widening. In strong-performing areas — such as those with technology hubs or robust tourism sectors — hiring continues, wages are rising modestly, and tax revenues remain stable.
In contrast, weaker states are experiencing layoffs, falling property values, and lower business formation. Many are also facing budget shortfalls that could force spending cuts on essential services, deepening the downturn.
This divergence means Americans’ experience of the economy increasingly depends on where they live. For some, the slowdown feels distant; for others, it’s already a daily reality.
Political and Economic Implications
The uneven downturn could soon have political consequences. States in recession may push harder for federal assistance or blame national policy for their decline. Discontent over economic inequality — between regions and industries — could influence upcoming elections and fuel debates over interest rates, trade, and energy policy.
Meanwhile, policymakers face a delicate balancing act: lowering inflation without crushing already fragile state economies. A uniform national response may no longer fit such an uneven recovery.
A Slow-Burning Crisis
Zandi cautions that the U.S. is not yet in a full-blown national recession — but warns that the risk is rising. If weakness in half the country spreads further, the tipping point could come quickly.
“The economy is fragile,” he says. “Parts of it are already in recession. The rest are just hanging on.”
For now, the message from Moody’s is clear: beneath the surface of national stability, America’s economic foundation is cracking — one state at a time.
