As the U.S. economy navigates a precarious path in late 2025, attention is increasingly turning to the outsized roles played by New York and California, whose combined economic weight could determine whether the nation tips into a full-blown recession. Mark Zandi, chief economist at Moody’s Analytics, has been vocal in highlighting this dynamic, pointing out that these two states account for nearly a third of the country’s gross domestic product. In a recent analysis, Zandi warned that persistent weaknesses in their housing markets, tech sectors, and consumer spending could cascade nationally if not addressed.

Recent data underscores this vulnerability. California’s economy, heavily reliant on technology and entertainment, has seen slowdowns exacerbated by high interest rates and reduced venture capital inflows, while New York’s financial services hub grapples with volatile markets and office vacancy rates hovering at record highs. Zandi, in an interview with Business Insider, emphasized that these states are “treading water” amid broader national pressures, including inflation’s lingering effects and labor market softening.

Signs of Strain in Key Metrics

Beyond these giants, Zandi’s broader assessment paints a concerning picture: approximately 70% of U.S. states are either in recession or teetering on the edge, based on indicators like employment growth and industrial output. For instance, states in the Midwest and South, dependent on manufacturing and agriculture, have experienced contraction for several quarters, with job losses accelerating in sectors hit by supply-chain disruptions and trade uncertainties.

This regional disparity contrasts with national GDP figures, which have shown resilience through mid-2025, buoyed by federal spending and consumer resilience in select areas. However, as reported in USA Today, Zandi argues that the aggregate numbers mask underlying fragilities, particularly in housing permits and unemployment claims, which he monitors closely as early warning signals.

The Role of Policy and External Factors

Federal Reserve actions, including recent rate cuts, offer some buffer, but Zandi cautions that delayed effects could still push vulnerable states over the brink. In California, for example, the tech layoffs and real estate slumps have ripple effects on retail and services, while New York’s Wall Street volatility ties into global financial flows, amplifying risks from international events like trade tensions with China.

Echoing this, a piece in Yahoo Finance notes Zandi’s identification of 22 states already in effective recession, defined by two consecutive quarters of declining economic activity. He advises individuals and businesses to bolster emergency funds and diversify investments, stressing that proactive measures could mitigate personal impacts even if a national downturn materializes.

Potential Paths Forward

Looking ahead, Zandi remains cautiously optimistic if policymakers intervene decisively, such as through targeted fiscal stimulus or infrastructure investments aimed at struggling regions. Yet, he warns in discussions with Newsweek that without stabilization in New York and California—perhaps via housing policy reforms or tech sector incentives—the odds of a broader recession climb uncomfortably high, potentially reaching 50% within the next year.

Industry experts concur that monitoring these bellwether states is crucial for investors and executives. As one economist told The Economic Times, the interplay between regional economies and national trends underscores the need for agile strategies in an era of uneven recovery. For now, the fate of the U.S. economy hangs in the balance, with New York and California’s trajectories serving as pivotal indicators for what lies ahead.