Recession Alert: 22 States Weakening - What Indians Must Know

The US economy is standing on shaky ground, and for many states, the downturn has already begun. According to Mark Zandi, chief economist at Moody’s Analytics, 22 states and the District of Columbia are now showing clear signs of recession, characterized by ongoing economic weakness and job losses. Another 13 states are “treading water”, he said.

“The economy is still not in recession, but the risks are very high. We’re on the precipice,” Zandi told MarketWatch. Even a modest shock could push the overall US economy into contraction.
Some of the largest US states, California and New York, are barely holding on. Zandi noted that if either state were to slip, it could be enough to tip the entire US economy into recession. The UCLA Anderson School of Management also stated that a recession in California is now plausible. Much of the current weakness stems from economic and trade policy:

• Tariffs on imported goods: These have disrupted supply chains and caused companies to pull back on expansion plans, according to Zandi.
• Labor-force constraints: Slow growth in the workforce this year has contributed to the slowdown.
• Federal job cuts: The Trump administration’s Department of Government Efficiency (formerly led by Elon Musk) reduced federal jobs, pushing Washington, D.C., and nearby states into the deepest regional downturn.

The National Bureau of Economic Research (NBER) defines a recession as a significant, broad-based decline in economic activity lasting more than a few months, based on employment, personal income, consumer spending, and industrial production. While identical data isn’t available at the state level, Zandi applies similar methodology with some judgment.

Despite strong GDP and consumer spending, the job market is weakening, particularly in states dependent on:

• Goods-producing industries: Farming, mining, and light manufacturing.
• Transportation sectors: Slow growth in regions like New England has amplified the downturn.

Unexpectedly, Georgia’s decline is tied to high home values discouraging domestic migration. Conversely, Pennsylvania remains a bright spot due to strong education and healthcare sectors.
The US is India’s largest trading partner, and a slowdown there can have direct and indirect effects:

1. Exports: Indian goods and services-especially IT, pharmaceuticals, and textiles, could see reduced demand.
2. Foreign Investment: US investors play a key role in Indian startups and markets. Reduced investment could slow capital inflows.
3. Stock Markets: US recession fears often trigger volatility in Indian equities.
4. Remittances: Millions of Indians work in the US; job losses or reduced income could impact remittance inflows.
5. Currency and Inflation: Lower US demand for Indian exports can influence trade balances, the rupee’s value, and inflation trends.

While the US economy is not officially in recession, the risks are high. Indians with business interests, investments, or personal financial connections to the US should stay informed. Even regional recessions in large US states like California and New York can create ripple effects that impact Indian trade, jobs, and investments.

As Zandi notes, we are on the precipice. For India, understanding these global links is essential to navigate potential economic shocks.