California and New York Economies Crucial for U.S. Stability

California, October 17, 2025

News Summary

Economists warn that the economic health of California and New York is vital in determining whether the U.S. can avoid a recession. Despite a strong GDP growth of 3.8% in Q2 2025, concerns linger due to risks like tariffs and inflation. With 21 states at risk of recession, the performance of these key states will greatly influence the national economy. Analysts predict ongoing caution in consumer sentiment and potential challenges in various industries.

California

Economists are sounding alarms regarding the crucial role that California and New York play in determining the stability of the U.S. economy. They warn that the economic health of these two states could be a key factor in whether the nation can avoid a recession. According to Scott Anderson, chief U.S. economist at BMO Capital Markets, these states are akin to “canaries in the coal mine,” indicating potential downturns.

Despite recent fears of an imminent recession, these concerns were somewhat alleviated by stronger-than-expected Gross Domestic Product (GDP) growth of 3.8% in the second quarter of 2025. However, worries persist about various economic factors that could impact the national outlook, including tariffs, inflation, and a weakened labor market.

Mark Zandi, chief economist at Moody’s Analytics, previously highlighted that 21 states and Washington D.C. are either currently in recession or face a high risk of entering one. He noted that while California and New York are “holding their own,” their economic performance has the potential to significantly sway the direction of the overall U.S. economy. If either of these states were to fall into recession, Zandi anticipates it could lead the entire nation into a recession.

The Bureau of Economic Analysis (BEA) reported that GDP growth has seen an increase in almost every state during the second quarter of 2025. Zandi defines a recession as a persistent decline in economic activity, characterized by weakening job growth. Although job growth metrics are delayed due to a government shutdown, speculation suggests that the labor market may be entering another weak period, with a potential loss of 4,000 jobs in September.

Zandi describes the job market as “sputtering,” indicating that monthly job growth is nearing zero. Factors such as higher tariffs and restrictive immigration policies are causing business uncertainties, which are further limiting labor demand. Interestingly, despite these challenging economic indicators, there have not been widespread layoffs among companies, which Zandi considers a vital buffer against a full-blown recession.

In the coming weeks, the BEA is expected to release its first estimates for GDP growth in the third quarter. Projections currently suggest an annual growth rate of roughly 1%. Zandi’s analysis reveals that the 21 states at risk contribute approximately one-third of U.S. economic activity. While other states are either growing or maintaining stable conditions, New England states are particularly struggling due to slow population growth.

Several industries, including agriculture, mining, manufacturing, and transportation, face difficulties that compound recession risks. The economic health of California and New York is especially critical, as these two states together account for over 20% of U.S. economic growth. Economists generally predict that the likelihood of avoiding a national recession remains slim, though recent fiscal and monetary policies might provide some degree of support.

The sentiment among consumers dropped in September, highlighting widespread worries about inflation and prospects for the labor market. Despite various positive economic signals, economists continue to express caution, noting a number of risks that could shift the economy in a downward direction.

FAQ

Key Features

Deeper Dive: News & Info About This Topic

• Newsweek: US Recession Chances in California and New York
• MarketWatch: New York and California Recession Impact
• San Francisco Chronicle: California Recession News
• USA Today: California and New York in Recession Debate
• KTVU: California Job Report and Recession Possibility
• Wikipedia: Recession
• Encyclopedia Britannica: Recession
• Google Search: Recession
• Google Scholar: Recession Economic Impact
• Google News: Recession

Author: STAFF HERE LOS ANGELES WRITER

The LOS ANGELES STAFF WRITER represents the experienced team at HERELosAngeles.com, your go-to source for actionable local news and information in Los Angeles, Los Angeles County, and beyond, specializing in "news you can use" with coverage of product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise from years of dedicated reporting and strong community input, including local press releases and business updates, while delivering top reporting on high-value events like the Academy Awards, LA Auto Show, and Los Angeles Marathon, extending coverage to key organizations such as the Los Angeles Area Chamber of Commerce and the Los Angeles Tourism & Convention Board, plus leading businesses in entertainment and technology like Warner Bros. and SpaceX, and as part of the broader HERE network including HEREAnaheim.com , HERECostaMesa.com , HEREHuntingtonBeach.com , and HERESantaAna.com , providing comprehensive, credible insights into Southern California's dynamic landscape. HERE Anaheim HERE Beverly Hills HERE Coronado HERE Costa Mesa HERE Hollywood HERE Huntington Beach HERE Long Beach HERE Los Angeles HERE Mission Viejo HERE San Diego HERE Santa Ana