Feel like you're in a recession? It could be where you live, economist says.

Moody's Analytics economist Mark Zandi reports that 21 U.S. states and D.C., comprising one-third of the national economy, are already in recession, with an additional 13 states stagnating, underscoring significant regional economic divergence. While Zandi narrowly predicts the U.S. will avoid a national recession, he emphasizes the precarious position of critical states like California and New York, whose stability is essential to avert a broader downturn. Key sectors including agriculture, manufacturing, and transportation are struggling, contributing to declining consumer sentiment, and several risks, such as a prolonged government shutdown or trade conflicts, could still trigger a national recession.

Analysis

Moody's Analytics economist Mark Zandi highlights significant regional economic divergence, with 21 states and D.C. (representing one-third of the U.S. economy) currently in recession, and another 13 states treading water. Despite this, Zandi narrowly predicts the U.S. will avoid a full national recession, though he notes it will be "by a whisper." This precarious national outlook is underpinned by a mixed sentiment score of -0.15 and an uncertain tone.

Frailties are concentrated in goods-producing sectors such as agriculture, mining, manufacturing, and transportation, exacerbated by tariffs and restrictive immigration policies. The stability of California and New York, which together account for over one-fifth of U.S. economic growth, is critical, as a recession in either could trigger a national downturn. The D.C. area also stands out due to government job cuts, indicating vulnerability in public sector employment.

Consumer sentiment declined in September, reflecting concerns over inflation and potential labor market weakness, despite strong Q2 economic growth of 3.8%. Key risks to the national outlook include a prolonged government shutdown, potential slowdowns in AI company revenues (e.g., GOOGL/GOOG with negative per-ticker sentiment), and trade retaliations, alongside the impact of aggressive Fed monetary policy. Wells Fargo (WFC, with positive per-ticker sentiment) economists, however, note continued strong consumer spending as a support.

Key Decisions for Investors

• Monitor state-level economic indicators and regional employment trends, particularly in California and New York, given their outsized impact on the national economy.
• Evaluate portfolio exposure to goods-producing sectors like agriculture, manufacturing, and transportation, which face headwinds from tariffs and policy, and consider defensive positioning.
• Assess macro risks such as a prolonged government shutdown, potential trade escalations, and the Federal Reserve's monetary policy actions, as these could quickly shift the national economic outlook.