If New York or California enter a recession, the entire U.S. economy would be next. So how are they doing?

New York and California, two of the largest U.S. state economies, are currently experiencing economic struggles, which Moody's Analytics chief economist Mark Zandi suggests could act as a leading indicator for the broader national economy. While these states are not yet in recession, unlike 22 other states, their deteriorating conditions warrant close monitoring as a potential precursor to a wider U.S. economic downturn.

Analysis

The economies of New York and California, two of the largest U.S. states, are currently facing significant economic struggles, as noted by Mark Zandi, chief economist at Moody's Analytics (MCO). These states are being viewed as potential "canaries in the coal mine" for the broader national economy, implying their performance could serve as a leading indicator for a wider U.S. downturn.

While these bellwether states are not yet officially in recession, their deteriorating conditions are a concern, especially when compared to the 22 other U.S. states already experiencing a recession. The overall sentiment surrounding this economic outlook is strongly negative, with a score of -0.65, indicating a pessimistic view on the near-term economic trajectory.

This situation suggests a notable market impact, scoring 0.65, reflecting investor apprehension regarding potential contagion to the national economy. The analyst's insights highlight a critical risk factor that warrants close monitoring for institutional investors assessing macroeconomic stability.

Key Decisions for Investors

• Closely monitor key economic indicators, such as employment and consumer spending data, specifically within New York and California, as their performance may foreshadow broader national economic trends.
• Evaluate portfolio exposure to companies with significant revenue or operational concentration in New York and California, considering potential impacts on earnings from regional economic deceleration.
• Consider adjusting asset allocations towards more defensive sectors or assets with lower correlation to cyclical economic downturns, given the pessimistic outlook and potential for a wider U.S. economic contraction.