California and New York’s Economies Impact U.S. Outlook

California and New York, October 17, 2025

News Summary

California and New York are pivotal in determining the U.S. economic future, accounting for over 20% of national growth. Recent stronger-than-expected GDP growth has eased recession fears, but uncertainties due to tariffs and a weak job market threaten stability. Economists warn that if either state enters a recession, the national economy may follow. With ongoing fluctuations and caution among companies, the economic outlook remains fragile as analysts anticipate upcoming GDP estimates.

California and New York are taking center stage in discussions about the economic future of the United States, as economists warn that the financial health of these two states could determine whether the country avoids a recession. Given their size and influence, California and New York collectively account for over 20% of U.S. economic growth. Therefore, shifts in their economies could have significant repercussions nationwide.

Scott Anderson, the chief U.S. economist at BMO Capital Markets, describes California and New York as potential “canaries in the coal mine,” indicating that their economic performance is a crucial indicator for the national economy. Recent data shows that fears of an imminent recession have been mitigated somewhat by stronger-than-expected GDP growth of 3.8% in the second quarter of 2025. However, many concerns linger regarding tariffs, inflation, and a weakened labor market, all of which threaten to impact the broader economic landscape.

Mark Zandi, chief economist at Moody’s Analytics, has identified that 21 states and Washington D.C. are currently in, or at high risk of a recession. Despite these broader risks, Zandi highlighted that California and New York are “holding their own,” suggesting that their stability or instability could greatly influence the overall national economy. Notably, if either of these states were to enter a recession, Zandi warns it may prompt the entire nation’s economy to follow suit.

Recent data from the Bureau of Economic Analysis (BEA) reveals that GDP growth has increased in almost every state during the second quarter of 2025. Nevertheless, a recession is defined by Zandi as a persistent decline in economic activity, particularly marked by weakening job growth. Job growth data, however, has faced delays due to a recent government shutdown, which has prompted speculation of another weak period for the labor market, potentially resulting in a loss of 4,000 jobs in September.

Zandi mentioned that monthly job growth appears to be “close to zero,” exacerbated by factors such as higher tariffs and restrictive immigration policies that create uncertainties for businesses and limit labor demand. Despite these negative economic indicators, many companies have not pursued layoffs, which Zandi considers a key buffer against recession risks.

The BEA is expected to release its first estimates for GDP growth in the third quarter soon, with projections hinting at an annual growth rate of about 1%. Zandi’s analysis illustrates that 21 states, which together represent approximately one-third of U.S. economic activity, are facing recession threats. Other regions, such as New England, are struggling due to slow population growth, contributing to varying economic conditions across the country.

Industries including agriculture, mining, manufacturing, and transportation are notably impacted and contribute to the growing recession risks. Even with the emergence of some positive economic signs, economists continue to express caution, acknowledging various risks that could shift the economy towards a recession.

Consumer sentiment has also taken a hit in September, reflecting widespread concerns about inflation and the future of the labor market. While economies in different states continue to experience fluctuations, the chance of maintaining economic stability at a nationwide level appears to remain thin.

FAQ

Deeper Dive: News & Info About This Topic

• Newsweek: US Recession Chances for California and New York
• San Francisco Chronicle: California Recession Concerns
• USA Today: How California and New York are Impacting Recession Decisions
• Encyclopedia Britannica: Recession
• Google Search: Economy California New York

Author: STAFF HERE SAN DIEGO WRITER

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