Credit Sesame examined recent economic conditions in all 50 states to predict which 10 states may be closest to a recession.
Inflation is squeezing household budgets. Rising interest rates makes it more expensive to borrow money. These and other economic concerns have raised the possibility that the U.S. economy is heading for a recession.
The U.S. is such a big and diverse country that it each state may be considered a separate economy. There are often with wide gaps between different states with some areas of the country thriving and others struggling.
That means that some states are closer to recession than others. It’s even possible that some are already experiencing a recession.
So which states may be closest to a recession?
What is a recession?
“Recession” is a word often used to describe bad economic conditions. But what does it really mean?
The dictionary definition is that a recession is the act of withdrawing or going back. In economic terms, this means a period when economic growth is shrinking back to previous levels rather than growing.
Over time, the economy goes through periods of growth and shrinkage. These are known as expansions and recessions. Fortunately, periods of expansion have historically been both longer and stronger than recessions.
Recessions come in all shapes and sizes. According to the National Bureau of Economic Research, the longest recession of the post-World War II era was 18 months, from the beginning of 2008 through mid-2009. That was the longest economic decline for the U.S. since the Great Depression of the 1930s.
In contrast, the shortest recession was just two months, in March and April of 2020. Normally, such a short decline would not be considered an official recession. However the economic decline that accompanied the onset of the COVID pandemic was especially severe.
According to the Bureau of Economic Analysis, economic activity shrunk by more than 30% during that period. That’s more than enough for it to be considered a recession, even though the recovery started soon after.
As for current conditions, the U.S. economy shrunk in the first quarter of 2022, but at an annual rate of just 1.6% after inflation. That’s not yet enough to be considered a recession, but economists and investors are keeping a wary eye on where that might be heading.
Which states may be closest to a recession?
In a country as big as the United States, each state has its own distinct economy. Different industries, population characteristics, climates and resources all make for a widely varying set of economic conditions. This means that some states may slip into a recession before others, or experience those conditions without the economy as a whole ever having a recession.
For most individuals and businesses in those states, what matters most are local conditions. If economic activity in a state falls for a sustained period, it means individuals lose their jobs and businesses lose revenue. With that in mind, it’s important to look at which individual states might be closest to the edge, regardless of whether the U.S. economy as a whole is headed for a recession.
Credit Sesame looked at three key factors for each of the 50 states:
- Unemployment rate from the Bureau of Labor Statistics. This indicates whether there are a lot of people already out of work.
- Job growth over the past year, also from the Bureau of Labor statistics. This shows whether the employment picture is getting better or worse.
- First quarter GDP growth from the Bureau of Economic Analysis. This provides a recent view of whether economic activity in each state is growing or shrinking.
Not only did the national economy shrink in the first quarter of 2022, but 46 of the 50 states also saw economic activity decline. In most cases those declines were relatively mild. However, the rate of decline in real GDP was as severe as 9.7% in one state included in our list of 10 states closest to a recession.
10 states which may be closest to recession
When all three factors were ranked and the rankings were averaged, these ten states were found to be closest to recession:
1. Alaska. Unemployment in Alaska is the third-highest of any state, and with tepid job growth over the past year it doesn’t look to be getting much better. Worst of all, Alaska’s economy shrunk at an annual rate of 8.2% after inflation during the first quarter. That was the second-worst performance of any state, and the combination of these three factors make Alaska look like the state that’s closest to recession.
2. Louisiana. The unemployment rate in Louisiana is worse than average, but the real problem is that it was one of the ten weakest states for job growth over the past year and for first quarter GDP.
3. Wyoming. This state’s economy suffered the most in the first quarter, with a decline in activity at a real annual rate of 9.7%. Another sign of trouble is that Wyoming had the nation’s third weakest job growth over the past year.
4. Delaware. Though Delaware’s first quarter GDP mirrored the nation’s as a whole, it was among the ten worst states for both unemployment and job growth over the past year suggesting things might be headed in the wrong direction.
5. North Dakota and New Mexico.
- North Dakota unemployment rate is a full percentage point lower than the national rate, which is a positive. However, its job growth over the past year was fifth slowest in the nation, and its first quarter GDP the third worst.
- New Mexico has the highest unemployment rate (5.1%) of any state. A strong rate of job growth over the past year suggests that may be getting better. Then again, having the fifth-fastest shrinkage of GDP in the first quarter says maybe not.
7. Kentucky. Though not among the ten weakest states in any category, Kentucky was worse than average in all three.
8. Pennsylvania, Hawaii and Ohio.
- Pennsylvania has the nation’s fifth-highest unemployment rate.
- Hawaii’s unemployment rate is still worse than the national average, despite decent job growth over the past year. With one of the ten worst GDPs in the first quarter, that might not get better anytime soon.
- Ohio state is worse than average in all three categories, with job growth over the past year being especially weak.
Though economic news is usually reported on a national basis, local conditions are more likely to inform your financial choices. They may even guide upcoming decisions about where to live.
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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.