California ‘treading water’ as 22 states near recession, Moody’s says

A recent Moody's Analytics report reveals that nearly half of U.S. states are either in recession or on the brink, with 22 states, representing a third of the nation's GDP, contracting or at high risk, and 13 others, including California and New York, merely "treading water." Chief economist Mark Zandi attributes this widespread weakness to factors such as slowing immigration and rising tariffs, indicating the U.S. economy is "on the edge of recession." This outlook is further underscored by JPMorgan Chase CEO Jamie Dimon, who warns of a potential U.S. recession by 2026, citing similar concerns about tariffs, government shutdowns, and overheated markets.

Analysis

Moody's Analytics reports that nearly half of U.S. states are either in recession or at high risk, with 22 states, representing one-third of the nation's GDP, currently contracting or facing imminent contraction. An additional 13 states, including economic powerhouses California and New York, are merely "treading water," indicating widespread economic fragility. Chief economist Mark Zandi explicitly states that the U.S. economy is "on the edge of recession," despite 16 states still experiencing growth.
The economic weakness is attributed to slowing immigration, rising tariffs, and reductions in federal employment. States heavily reliant on agriculture and manufacturing, such as Iowa, Kansas, and Illinois, are particularly affected. Conversely, southern states like Texas and Florida, while showing slowing momentum, are still buoyed by population growth, highlighting a significant regional divergence in economic performance.
The federal government shutdown exacerbates uncertainty by halting key economic data releases, obscuring the true pace of growth. JPMorgan Chase CEO Jamie Dimon echoes Zandi's concerns, warning of a potential U.S. recession by 2026, driven by rising tariffs, government shutdowns, and overheated markets. Dimon anticipates a "sharp correction" in the near term, reinforcing the pessimistic outlook.

Key Decisions for Investors

• Investors should re-evaluate portfolio allocations towards defensive sectors and regions less exposed to manufacturing, agriculture, and tariff impacts, considering the widespread state-level economic contraction.
• Monitor key economic indicators closely, particularly state-level employment and GDP data once government data releases resume, to gauge the true extent and duration of the economic slowdown.
• Consider hedging strategies or increasing cash positions given the warnings from Moody's and JPMorgan Chase regarding a potential "sharp correction" and impending recession.