What's Happening?
Economists are expressing concern that the economic performance of California and New York could be pivotal in determining whether the United States enters a recession. Scott Anderson, chief U.S. economist at BMO Capital Markets, highlighted the importance of these states, referring to them as 'canaries in the coal mine' for the national economy. Mark Zandi, chief economist at Moody's Analytics, noted that 21 states and Washington, D.C. are currently at high risk of recession, based on various economic indicators such as payroll employment and industrial production. Despite recent GDP growth in the second quarter of 2025, fears persist due to tariffs, inflation, and a weakened labor market.
Why It's Important?
The economic health of California and New York is crucial due to their significant contributions to the national economy. If these states experience economic decline, it could lead to a broader national recession. Conversely, if they maintain or improve their economic performance, the U.S. might avoid a recession. The situation is further complicated by factors such as tariffs and restrictive immigration policies, which are impacting the job market by creating uncertainty and limiting labor supply. The outcome will have significant implications for businesses and workers across the country.
What's Next?
The Bureau of Economic Analysis is set to release its first estimates for GDP growth in the third quarter later this month. This data will provide further insight into the economic trajectory of the U.S. TradingEconomics projects a 1 percent growth at an annual rate, which will be closely watched by economists and policymakers. The ongoing government shutdown has delayed official job growth data, but private data sources suggest a weak labor market, with a plausible loss of 4,000 jobs in September.
Beyond the Headlines
The economic situation in California and New York could have long-term implications for U.S. economic policy, particularly in areas like immigration and trade. The performance of Wall Street and California's tech sector will be critical in shaping the future economic landscape. Additionally, the current economic uncertainty may influence political decisions and public sentiment regarding economic policies.
