Moody's Analytics Warns of Recession Risk Affecting One-Third of U.S. Economy

What's Happening?

Moody's Analytics chief economist Mark Zandi has issued a warning that nearly a third of the U.S. economy is either already in a recession or at high risk of entering one. According to Zandi, states accounting for a significant portion of the U.S. GDP are experiencing economic downturns, with another third of the economy stagnating. The remaining third is still expanding, but growth is slowing. Zandi's analysis is based on various datasets and a machine-learning-based recession indicator, which currently places the odds of a recession in the next 12 months at 49%. The labor market is also showing signs of weakness, with payroll expansions falling short of forecasts and more than half of industries shedding jobs.

Why It's Important?

The potential recession poses significant risks to the U.S. economy, affecting industries, employment, and consumer spending. If the recession materializes, it could lead to increased unemployment and reduced economic activity, impacting both businesses and households. The warning from Moody's Analytics highlights the vulnerability of the economy, particularly in states with high recession risks. The situation is further complicated by external factors such as tariffs and restrictive immigration policies, which could exacerbate inflation and reduce household incomes. The economic outlook remains uncertain, with potential implications for fiscal policy and government spending.

What's Next?

The economy is expected to be most vulnerable to a recession towards the end of this year and early next year. Policymakers may need to consider measures to stimulate growth and mitigate the impact of a potential downturn. This could include tax cuts and increased government spending, although these measures may not take effect until next year. The Federal Reserve's monetary policy decisions will also play a crucial role in shaping the economic landscape. Stakeholders, including businesses and consumers, will need to prepare for possible economic challenges and adjust their strategies accordingly.