economy

Here Are The States At The Highest Risk Of Recession

Hint: Michigan may be in trouble, and it's a battleground state.

Via LendingTree (abridged)

A Federal Reserve Bank of New York model puts the risk of recession at almost 40% over the next 12 months.

This — in addition to heightening trade tensions and growing market sentiment that the Fed will again cut rates at the end of 2019 — has amplified the chorus of news reports arguing that the economy is weakening. Despite this growing concern, it is difficult to determine when an economic downturn will hit — or how bad it will be.

Even though economics on the national level is directly tied to economics on the state level, the two do not always behave the same way.

We built a model to evaluate how at risk each state is for a recession. Specifically, our model estimates the likelihood that a state will have weak economic fundamentals, as determined by the growth rate of that state’s coincident index. State coincident indexes — created by the Federal Reserve Bank of Philadelphia — gauge how well a state economy is doing.

If a state has a negative year-over-year growth rate in its coincident index, it’s likely that that state has weak economic fundamentals. If a state has a negative year-over-year growth rate in its coincident index for two or more consecutive quarters, then we’ve considered it to likely be in recession.

Key findings

  • The states that show the highest probability for weak economic fundamentals — and are thus at a higher risk of recession — are Michigan, Hawaii and Montana. At 58.86%, the chance that Michigan will have weak economic fundamentals in the fourth quarter is the highest in the nation. In fact, Michigan’s state coincident index’s growth rate was negative in July (the last month available at the time of this piece’s writing), all but confirming that its economy is on shaky grounds.
  • The states that show the lowest probability for weak economic fundamentals — and are thus at a lower risk of recession —are Nebraska, Oregon and Idaho.
  • While some states show a high likelihood of weak economic fundamentals in the near future, most appear to be in good shape. Our model predicts that by Q4 of 2019, the probability of weak economic fundamentals in 42 states will be below 5%. Based on the conclusions of our model, it seems that —  barring any drastic changes — most states aren’t in immediate risk of recession.
  • Though our model predicts that most states will still be in good shape by the end of the year, these rosy outlooks can turn gloomy quickly. This is because economic circumstances, especially on the state level, can change very quickly. Therefore, just because there isn’t a high likelihood that most states will experience weak economic fundamentals by the end of the year doesn’t mean that they are totally in the clear for the foreseeable future.
  • While the economic fundamentals we considered — home price growth, unemployment rate growth, tax growth and personal income growth — are generally good indicators for how well an economy is doing, they are not the only indicators that matter.

10 states with the highest risk for recession

No. 1: Michigan

  • Probability of weak economic fundamentals in Q4 2019: 58.86%
  • State coincident index growth rate in July 2019: -0.29%
  • Start of last recession: Q4 2007
  • End of last recession: Q1 2010

No. 2: Hawaii

  • Probability of weak economic fundamentals in Q4 2019: 30.53%
  • State coincident index growth rate in July 2019: 0.52%
  • Start of last recession: Q4 2007
  • End of last recession: Q4 2009

No. 3: Montana

  • Probability of weak economic fundamentals in Q4 2019: 11.60%
  • State coincident index growth rate in July 2019: 3.56%
  • Start of last recession: Q3 2007
  • End of last recession: Q4 2010

No. 4: Maryland

  • Probability of weak economic fundamentals in Q4 2019: 10.88%
  • State coincident index growth rate in July 2019: 2.33%
  • Start of last recession: Q3 2008
  • End of last recession: Q2 2010

No. 5: Louisiana

  • Probability of weak economic fundamentals in Q4 2019: 7.56%
  • State coincident index growth rate in July 2019: 0.20%
  • Start of last recession: Q1 2016
  • End of last recession: Q4 2016

No. 6: Kansas

  • Probability of weak economic fundamentals in Q4 2019: 5.21%
  • State coincident index growth rate in July 2019: 1.59%
  • Start of last recession: Q3 2008
  • End of last recession: Q1 2010

No. 7: Illinois

  • Probability of weak economic fundamentals in Q4 2019: 5.14%
  • State coincident index growth rate in July 2019: 1.78%
  • Start of last recession: Q3 2007
  • End of last recession: Q1 2010

No. 8: Delaware

  • Probability of weak economic fundamentals in Q4 2019: 5.14%
  • State coincident index growth rate in July 2019: 3.28%
  • Start of last recession: Q2 2008
  • End of last recession: Q1 2010

No. 9: Oklahoma

  • Probability of weak economic fundamentals in Q4 2019: 4.32%
  • State coincident index growth rate in July 2019: 2.30%
  • Start of last recession: Q1 2009
  • End of last recession: Q2 2010

No. 10: South Carolina

  • Probability of weak economic fundamentals in Q4 2019: 3.83%
  • State coincident index growth rate in July 2019: 2.40%
  • Start of last recession: Q3 2008
  • End of last recession: Q1 2010

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