Economist Says These 2 States Could Decide America's Recession Fate
News Summary
Mark Zandi, an economist at Moody's Analytics, suggests that the economic performance of New York and California could determine whether the United States enters a recession, as their trends mirror broader national dynamics. While Zandi notes that several U.S. states might already be in recession, he believes New York and California are "treading water," holding steady despite significant economic headwinds. These headwinds include higher tariffs, restrictive immigration policies, and de-globalization from the Trump administration, yet they benefit from the AI boom, rising investment, and the impact of surging stock prices on wealthier households' spending. Zandi has been warning for months that the U.S. economy is on the precipice of a downturn. He highlights that a partial government shutdown has delayed federal data, making national assessment difficult. He currently relies on state-level metrics like migration trends, credit growth, and housing prices to gauge economic health, concluding that these states face powerful headwinds and tailwinds that are currently battling to a draw.
Background
Mark Zandi is the chief economist at Moody's Analytics, known for his regular assessments and forecasts of the U.S. economy. He has previously issued multiple warnings about the potential for a U.S. recession, and his views carry weight in financial markets. In 2025, under the re-elected Trump administration, the U.S. economy is navigating ongoing adjustments in trade policies, immigration, and globalization trends. Simultaneously, the rapid advancement of artificial intelligence is driving investment and stock market performance in certain sectors, creating complex and conflicting drivers for the economy.
In-Depth AI Insights
What are the broader implications for national economic policy and market expectations when Zandi relies heavily on state-level data for economic health assessment, amidst federal data disruptions due to a government shutdown? - Relying on state-level metrics (e.g., migration, credit, housing prices) as proxies when federal data is limited can introduce biases in aggregation and national representation, potentially leading to misdiagnoses of the national economic condition, especially given significant state-to-state variations. - This data gap could challenge the Trump administration's economic policymaking, as a lack of comprehensive real-time data might result in delayed or misaligned policy responses, exacerbating economic volatility rather than ensuring a smooth transition. - Markets may increasingly focus on regional and sector-specific data points to compensate for macro-level uncertainty, potentially leading to more fragmented investment strategies and greater divergence in regional asset performance. How might the interplay between the Trump administration's protectionist and de-globalization policies and the AI boom-driven technological advancements foster a potential "two-speed economy," and what are the deeper investment implications? - Trade barriers and de-globalization impose continuous pressure on states heavily reliant on traditional manufacturing and global supply chains (including specific sectors within New York and California), potentially curbing job growth and investment in these areas. - Concurrently, the AI boom injects significant capital and wealth effects into tech hubs and innovative companies, particularly among higher-income households, stimulating consumption and supporting stock markets. This divergence could create stark differences between fast and slow regions within the economy. - For investors, this implies a need for more granular asset identification and allocation, favoring sectors and companies benefiting from AI and high-tech innovation, while being wary of structural challenges facing traditional industries and regions heavily impacted by trade policies, thereby accentuating the market's 'winners and losers'. New York and California's role as "bellwethers" highlights what long-term structural shifts in the U.S. economy, and how should investors strategically position for such transformations? - As primary hubs for globalization and technological innovation, these states' economic performance is influenced by global capital flows and cutting-edge technological developments far more than other regions. This suggests an increasing concentration of U.S. economic growth engines in a few high-tech and financial centers. - Their resilience, even against policy headwinds, underscores the robustness of the innovation economy, where technological advancements (like AI) can offset negative macroeconomic policy impacts, indicating future economic growth will rely more on tech innovation than traditional industries. - Investors should recognize that this structural shift may lead to further widening of wealth disparities between regions and industries. Strategically, this could mean increased allocation to core assets within the innovation ecosystem (e.g., tech giants, venture-backed startups) and focusing on agile companies that can adapt to and leverage global and technological change trends.