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According to new study published this week by the Federal Reserve, the danger of a statewide recession is rising in all fifty states.
According to experts at the St. Louis Fed, a total of 27 U.S. states are exhibiting symptoms of waning economic activity.
The research referenced data from the Philadelphia Fed’s state coincident index, which measures economic conditions by state using four factors related to the labor market, productivity, and inflation.
“In conclusion, a threshold estimate based on this analysis indicates that 26 states must have negative growth in the SCI in order to have reasonable confidence that the national economy has entered a recession,” researchers from the St. Louis Fed wrote in the report, which did not name the failing states.
Researchers from the St. Louis Fed observed that, on average, 26 states saw negative growth during each of the last six recessions dating back to 1980.
The news could be another reason for investors’ rising unease. Following a series of significant Federal Reserve interest rate hikes, the U.S. economy has plunged into recession. Critics of the central bank claim that its initiatives to combat inflation are excessive.
Currently, situations are marginally better than they were at the beginning of the COVID pandemic, when the US economy slid into recession. In March 2020, the state coincident index for 35 states turned negative, but the economy quickly returned to growth.
The analysis concluded the Great Recession is a “outlier” compared to previous recent economic downturns. In January 2008, only nine states had negative growth, according to the St. Louis Fed.
The majority of analysts did not anticipate a recession until the collapse of Lehman Brothers in September 2008, which precipitated a significant decrease in stock prices and a plunge in economic activity across the economy. By October 2008, 47 states had negative SCI growth, according to researchers.
Additionally, the researchers noticed that certain recessions “were more widespread than others.”
“All states experienced recession conditions at some point during the 2007-09 and 2020 recessions, but only approximately two-thirds of states saw negative growth during the 1990-91 recession,” they stated.
Although he admitted that the future was uncertain, Fed Chair Jerome Powell stated earlier this month that he still saw a route for the economy to achieve a “soft landing” and avoid a recession.
“I don’t believe anyone knows whether or not a recession will occur and, if it does, whether or not it would be severe. It is simply unknowable,” Powell stated.
The Fed has hinted that additional interest rate hikes are likely in 2023, albeit at a slower pace than this year’s outsized increases.
»Fed research explains why the likelihood of a US recession is growing«