In a stark warning that could reshape the national economic conversation just weeks into the new administration, Moody’s Analytics has dropped a bombshell: 22 states—home to nearly one-third of the country’s total GDP—are either already mired in recession or staring down the barrel of one.
This isn’t some abstract forecast; it’s a real-time snapshot of an economy fracturing along regional lines, fueled by aggressive tariffs, a sharp slowdown in immigration, and brutal federal job cuts.
The analysis, led by Moody’s chief economist Mark Zandi, paints a picture of a nation where the headline numbers—4.3% unemployment and robust 3.8% GDP growth in the last quarter—mask deep pockets of pain.
“The economy isn’t in recession nationally, but it’s pretty darn close,” Zandi told reporters Thursday, his voice carrying the weight of someone who’s been crunching these numbers for decades.
“If New York and California turn down, the nation’s going into recession.”
The States in the Crosshairs
Zandi’s index, modeled after the National Bureau of Economic Research’s gold-standard recession detector, blends a cocktail of state-specific data: employment trends, industrial production, personal income shifts, housing starts, credit card delinquencies, credit scores, port throughput, and even migration patterns.
States scoring negative? They’re contracting. Teetering on zero? High risk.
While Moody’s hasn’t released an exhaustive public roster (yet), the report spotlights a diverse lineup of offenders spread from sea to shining sea.
Agriculture-heavy heartlands like Iowa, Kansas, and South Dakota are reeling from tariff-induced export slumps that have farmers watching silos fill while prices plummet.
Manufacturing powerhouses such as Georgia, Illinois, and Oregon are feeling the squeeze from disrupted supply chains and retaliatory trade barriers.
Then there’s the Beltway belt: Virginia and Maryland, bastions of federal employment, are hemorrhaging jobs amid across-the-board government reductions.
Don’t forget Washington state and Maine up north, Minnesota in the Midwest, and even the District of Columbia itself, where unemployment spiked to a nation-leading 6% last month.
These aren’t backwater economies.
Together, they punch above their weight, contributing about 30% to U.S. output—a scale that could drag the whole country under if the bleed worsens.
Zandi emphasizes employment as the “most important indicator,” but it’s the cocktail of woes—rising delinquencies, stalled homebuilding, and outbound migration—that’s turning isolated slowdowns into full-blown contractions.
| Category | States at Risk | Key Vulnerabilities |
|---|---|---|
| Agriculture-Dependent | Iowa, Kansas, South Dakota | Tariff hits on exports, falling commodity prices |
| Manufacturing Hubs | Georgia, Illinois, Oregon, Minnesota | Supply chain disruptions, trade retaliation |
| Federal Job Reliant | Virginia, Maryland, D.C. | Layoffs from budget cuts, shutdown fallout |
| Other Hotspots | Washington, Maine | Port slowdowns, regional migration outflows |
Table: Snapshot of select states from Moody’s analysis, based on August 2025 data.
The Culprits
What ties this patchwork of pain together? Three big, bold policy pivots that hit like a triple whammy.
First, tariffs.
The administration’s ramped-up duties on imports—aimed at protecting domestic industries—have instead sparked a trade war inferno.
Midwestern manufacturers and Southern farmers, who rely on global markets for everything from soybeans to auto parts, are paying the piper with lost orders and ballooning costs.
“Those industries are getting hit hard,” Zandi notes, pointing to states like Georgia, where Atlanta’s once-booming logistics sector is now idling trucks.
Second, immigration clampdowns.
The sharp drop in new arrivals—down 40% year-over-year in key sectors—has starved labor-intensive fields like construction and hospitality.
States that thrived on influxes during the pandemic, from Oregon’s tech-adjacent farms to Maine’s seasonal fisheries, are now short-staffed and slowing.
And third, the federal axe.
With a government shutdown dragging into its second month, non-essential jobs are vanishing—up to 800,000 nationwide, per early estimates.
No place feels it like the D.C. metro area, where Virginia and Maryland house hordes of contractors and civil servants suddenly on unpaid leave or pink slips.
“The broader D.C. area stands out due to government job cuts,” Zandi observed in a recent social media post.
These aren’t random shocks; they’re direct fallout from campaign promises now in motion.
Economists like Zandi warn that while short-term pain might yield long-term gains, the interim looks brutal for blue-collar workers in these states.
Bright Spots Amid the Gloom
It’s not all red ink on the map.
Sixteen states are chugging along with solid expansion, led by population booms in the Sun Belt.
Texas and Florida top the list, their economies juiced by inbound migrants (the legal kind) and resilient service sectors.
Thirteen others, including economic titans California and New York, are “treading water”— buoyed for now by Wall Street’s bull run and Silicon Valley’s AI frenzy, but vulnerable to any stock market hiccup.
For lower- and middle-income families in the danger zone, though, the “recession feel” is already here.
Even with jobs intact, wages aren’t keeping pace with inflation, debts are piling up, and savings? What’s that?
“They’re hanging on by their fingertips financially,” Zandi says of households earning under $35,000.
“You can sustain that for a while, but you can’t sustain that forever.”
A Tipping Point for America
This Moody’s missive isn’t just data—it’s a flare in the night sky for policymakers.
With midterms looming in 2026, voters in these 22 states (think swing districts in Illinois and Georgia) could swing hard against the status quo if relief doesn’t materialize.
The Fed’s next moves—another rate cut? Quantitative easing?—will be watched like hawks, especially as unemployment edges toward that precarious 5% threshold.
Also Read: Economists Now Warn Trump’s Immigration Policies Will Slow US Economy
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