Moody’s Report Highlights U.S. States on Recession Watch

A new analysis from Moody’s Analytics indicates that nearly 22 U.S. states are either in or teetering on the edge of a recession, signaling heightened regional economic risks across the country.

Mark Zandi, Chief Economist at Moody’s, noted that states accounting for more than one-third of the nation’s GDP are either already in recession or at significant risk of entering one. Another third of states are holding steady, while the remaining third continue to experience growth, albeit modestly.

“State-level data makes it clear why the U.S. economy is on the edge of recession,” Zandi wrote in a post on X. He emphasized that while recession-prone states are geographically dispersed, the Washington, D.C., metro region stands out due to government employment cuts and uncertainty tied to the ongoing federal shutdown.

Regional Insights

Southern states, though currently among the strongest, are showing signs of slowing growth. Meanwhile, California and New York, collectively contributing over 20% of U.S. GDP, remain relatively stable. Their economic performance is pivotal for the broader national outlook, as any significant slowdown in these states could ripple across the U.S. economy.

“While the South remains resilient, the pace of expansion has slowed considerably,” Zandi said. “Maintaining stability in high-GDP states like California and New York is essential to prevent a nationwide downturn.”

National Economic Headwinds

The timing of Moody’s report coincides with worrisome labor data, including downward revisions to prior months’ job growth. Between May and August 2025, the Labor Department reports the U.S. added only an average of 27,000 jobs per month a pace far below historical norms.

The government shutdown exacerbated uncertainty, delaying the release of September’s jobs report. In the absence of official data, private payroll processor ADP reported 32,000 jobs lost in September, underscoring that hiring has slowed across multiple sectors.

Jake Krimmel, Senior Economist at Realtor.com, warned, “Whether nationwide or localized, recessions are generally bad for housing markets. Higher unemployment, slower hiring, and stagnant wages all strain potential homebuyers and increase risks for current homeowners with mortgages.”

Housing Market Implications

Economic contraction tends to lower mortgage rates, potentially making homes more affordable. However, only buyers confident in their income stability would benefit, as recession-related job losses could limit purchasing power.

Krimmel also highlighted indirect effects, including heightened uncertainty that can influence property values and slow sales. Yet, he noted a mitigating factor: “Interestingly, many of the states at highest risk, particularly in the Northeast, currently have robust housing markets. Inventory is tight and prices remain strong, which may buffer against immediate downturns.”

States such as Texas, Florida, and Arizona continue to expand economically, even amid broader national concerns. This resilience could soften potential housing market declines in these regions, given that their markets are less sensitive to slow-moving inventory and modest price increases.

“As long as local economic fundamentals and housing markets don’t weaken at the same time, a severe nationwide housing downturn remains unlikely,” Krimmel added.

Broader Takeaways

The Moody’s report underscores that regional disparities will define the next stage of the U.S. economic cycle. High-GDP metros may act as stabilizers, while smaller or government-dependent regions face greater vulnerability. Analysts caution that monitoring labor markets, consumer spending, and local housing conditions will be critical for assessing whether the nation could slip into a broader recession.

Even as some states face contractionary pressures, others continue to drive modest growth, suggesting that while the national economy is at risk, the impact will not be uniform, and housing markets in resilient states may remain relatively insulated from a downturn. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.