Mark Zandi Analysis: 22 States in Recession Amid Economic Divergence

This analysis is based on recent reports from Yahoo Finance [1], Axios [2], and Newsweek [3] published in October 2025, detailing Mark Zandi’s comprehensive assessment of state-level economic conditions. The Moody’s Analytics chief economist has identified 22 states plus Washington D.C. as being in recession or on the brink of economic downturn, representing approximately one-third of national GDP [2][3].

The analysis reveals a striking geographic economic divergence occurring despite relatively strong national economic indicators. While U.S. GDP grew 3.8% in Q2 2025 [3], nearly half the states are experiencing recessionary conditions, creating uneven economic performance across the country. Zandi’s methodology mirrors the National Bureau of Economic Research (NBER) recession determination process, utilizing a multi-factor index that includes state-level employment data, industrial production, personal income, housing starts, credit delinquency rates, and migration patterns [2].

The affected states span all U.S. regions and include: Connecticut, Delaware, Georgia, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Montana, New Hampshire, New Jersey, Oregon, Rhode Island, South Dakota, Virginia, Washington, Washington D.C., West Virginia, and Wyoming [1][2][3]. Washington state provides a concrete example of the recessionary pressures, having lost 5,400 jobs year-over-year as of August 2025, with the restaurant sector particularly hard hit by over 2,000 closures in the first half of 2025 [4][5].

: The analysis identifies tariffs and restrictive immigration policies as primary drivers of the state-level downturns [2]. States most exposed to agricultural and manufacturing sectors are experiencing the worst impacts, suggesting that trade policy and labor market restrictions are creating sector-specific economic pain that varies significantly by state economic composition.

: States with high concentrations of federal employment face particular risk. Virginia, Maryland, and Washington D.C. are especially vulnerable to federal job cuts [2], highlighting how federal fiscal policy can create geographic economic disparities beyond traditional industry exposure.

: California and New York, representing massive economic engines, are currently “treading water” according to Zandi’s analysis [2][3]. Their future performance could determine whether the U.S. economy tips into a full national recession, making these states crucial bellwethers for broader economic conditions.

: Despite steady employment nationally, lower and middle-income households are described as “hanging on by their fingertips” [1]. This suggests that employment metrics alone may not capture the full extent of economic distress, particularly regarding household financial resilience and consumer spending capacity.

: The significant economic divergence between states creates both risks and opportunities for investors. While 22 states show recessionary conditions, others continue to grow, requiring more granular geographic analysis rather than reliance on national economic indicators alone [3].

: The current federal shutdown is limiting access to fresh economic data [2], creating information gaps that could delay recognition of worsening conditions or early recovery signals. This data scarcity increases uncertainty for economic forecasting and investment decision-making.

: The analysis suggests that state economies are highly sensitive to federal policy changes, particularly regarding trade and immigration. Future policy developments could quickly impact affected sectors, creating both risk and opportunity depending on policy direction [2].

: Credit card delinquency rates and household credit growth serve as leading indicators for household financial stress [2]. These metrics may provide early warning signals of worsening economic conditions before they appear in traditional employment or GDP data.

Mark Zandi’s analysis identifies 22 states plus Washington D.C. experiencing recessionary conditions based on a comprehensive index of economic indicators [1][2][3]. The affected states represent approximately one-third of national GDP, creating significant geographic economic divergence despite strong national growth metrics. Washington state exemplifies the downturn with 5,400 job losses year-over-year and over 2,000 restaurant closures in the first half of 2025 [4][5].

The recessionary conditions appear primarily driven by policy factors including tariffs and immigration restrictions, with states most exposed to agricultural and manufacturing sectors experiencing the worst impacts [2]. Federal employment concentrations create additional vulnerability in states like Virginia, Maryland, and Washington D.C. [2].

California and New York, while not currently in recession, are “treading water” and their future performance could determine whether the U.S. economy enters a full recession [2][3]. Consumer financial stress remains elevated despite steady employment, particularly among lower and middle-income households [1].

Current federal shutdown conditions are limiting access to fresh economic data, creating information gaps that complicate real-time assessment of economic conditions [2]. This data scarcity increases uncertainty for monitoring economic trends and forecasting future developments.