Moody’s: One-Third of US States in Economic Recession

Moody’s has issued a stark warning about the state of the U.S. economy, highlighting a growing economic divide. 

While some states are experiencing strong economic growth, others are facing sharp contractions. The credit rating agency cautioned that this divergence could have severe consequences for the world's largest economy.

According to an analysis by Moody’s, around 33% of U.S. states are currently in economic recession. The agency used a methodology similar to that of the National Bureau of Economic Research, revealing a notable contraction in economic activity in states such as New Jersey, Illinois, Virginia, Georgia, Washington, Iowa, and Oregon.

While these states face shrinking economic output, several other major states are continuing to expand. California, Texas, and New York, which together contribute nearly one-third of the U.S. GDP, are experiencing economic growth, further deepening the wealth distribution gap within the country.

The economic slowdown is particularly affecting sectors like agriculture, manufacturing, and construction, which have traditionally been strong in industrial and rural states. These industries are suffering significant downturns, adding to the financial strain on these regions.

Meanwhile, sectors such as healthcare, technology, and real estate are seeing expansion, contributing to the uneven growth across the U.S. economy. Financial services, retail, and hospitality sectors remain barely stable, further illustrating the contrasting economic conditions from one state to another.

Inflation in the U.S. has also surged again, adding to the country's economic woes. In the second week of September 2025, the core consumer price index (CPI) registered a sharp increase of 3.1%, reflecting a widespread rise in prices across the economy.

This rate now exceeds the Federal Reserve's long-term target by 110 basis points. Simultaneously, the labor market is experiencing a slowdown, prompting the Federal Reserve to consider interest rate cuts to mitigate the downturn.

In July 2025, the consumer confidence index dropped to 34.1, the lowest level since 2021, indicating that fewer Americans believe there are jobs available. This represents a 22-point decrease over the past two years, signaling a notable contraction in the job market. The U.S. now faces a dual crisis of rising unemployment and persistent inflation, creating a difficult economic environment.

The economic disparities between states could further exacerbate wealth inequality across the country, making it harder for certain regions to recover from downturns. Additionally, the inflationary pressures and the struggling job market are creating a perfect storm for the U.S., with no immediate resolution in sight.