Most states are prepared for a recession

New York, September 29, 2022 – The majority of US states have the resources to weather an economic recession, according to a new study from Moody’s Analytics. A record 43 states have the cash to weather an economic crisis without having to resort to deep spending cuts or tax increases.

“States have never been better positioned to weather a recession,” said Emily Mandel, the study’s author. “State policymakers appear to have learned a valuable lesson from the Great Recession, a period when tax revenue losses far outstripped savings.”

The Moody’s Analytics study examines how well a state’s finances can sustain it in the event of an economic downturn. Moody’s Analytics economists performed stress tests on all 50 states to arrive at an estimate of each state’s recession needs in the event of a moderate recession. The study takes into account the impact of the economic cycle on government revenue and expenditure over two fiscal years.

Although the stress test results reveal that most states are prepared for a recession, there is some variation in their preparedness, according to the study. A total of 39 states have the funds to significantly reduce the stress of a recession. Four states are expected to raise taxes or cut spending by less than 5% of their budgets. However, seven states are expected to resort to spending cuts or tax increases of more than 5% of their budgets.

States overly reliant on tourism and consumer spending will be hardest hit during a recession, the study found. States whose economy relies on agriculture and energy are better positioned to weather the storm.

The bottom five states with an income gap below 10% are:
• Illinois
• Alaska
• Arizona
• Mississippi
• New Hampshire

In contrast, the most cash-rich states are:
• North Dakota
•Wyoming
• Idaho
• California
• Delaware

To protect their budgets from increased volatility and fiscal drag, state and local policymakers should consider investing in their budget processes and making stress testing a higher priority. “States may wish to consider formulating targeted reserve levels,” Mandel added. “Planning for a recession requires setting aside enough money today to prepare for a future downturn, without delaying economic growth.”

Read the state stress test study.

About Moody’s Analytics
Moody’s Analytics provides financial intelligence and analytical tools to help business leaders make better decisions, faster. Our deep risk expertise, vast information resources and innovative application of technology help our clients navigate a changing market with confidence. We are known for our industry-leading and award-winning solutions, comprised of research, data, software and professional services, assembled to deliver a seamless customer experience. We create trust in thousands of organizations around the world, through our commitment to excellence, our open-minded approach and our focus on meeting customer needs. For more information on Moody’s Analytics, visit our website or join us on Twitter and LinkedIn.

Moody’s Analytics, Inc. is a subsidiary of Moody’s Corporation (NYSE: MCO). Moody’s Corporation posted 2021 revenue of $6.2 billion, employs more than 14,000 people worldwide, and maintains a presence in more than 40 countries.

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About Jefferey G. Cannon

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