Recession misses America’s asset owners while hitting everyone else

Nearly half of the United States is slipping toward recession. However, according to financial newsletter Kobeissi, wealthy asset holders are feeling a much “nerfed” impact compared to households strained by rising debts, stagnant wages, and job cuts. 

The Kobeissi Letter, sharing a chart from Moody Analytics, reported that 23 states are now in recession or at high risk of entering one. Those states represent almost a third of total US economic output, a deterioration from September’s findings which counted 22 states, with the addition of Michigan.

23 US states are fighting a losing battle with recession

Struggling parts of the country are states in the Midwest, Northeast, and Northwest, where those marked in red include Washington, Oregon, Montana, Wyoming, South Dakota, Minnesota, Iowa, Michigan, Illinois, Virginia, Connecticut, and Maine. 

States supposedly in the clear include Texas, Florida, Louisiana, Arizona, North Carolina, and Georgia. Those mentioned to be in the “water,” which meant they are holding steady but no longer posting meaningful growth, were California, New York, Nevada, Pennsylvania, and Maryland. 

According to the report, the nation’s two largest state economies California and New York are no longer expanding at earlier rates, and MarketWatch economist Mark Zandi believes the two could turn the whole US into recession if the situation deteriorates. 

Moody Analytics’ research also found that the top 10% of households control about two-thirds of the nation’s wealth, while the bottom half of Americans hold less than 3%.

The wealth of asset holders, the struggle of hand-to-mouth workers

Households with investment portfolios, rising home values, or business equity are benefiting from appreciating financial markets. Meanwhile, families whose spending goes primarily toward rent, insurance, utilities, and groceries are struggling because prices are not coming down, and wages are not getting any better.

“While there is some distress at the household level, in line with that K-shaped economy where the rich get richer and the poor get poorer. The macro picture is fairly bright,” wrote Bankrate senior industry analyst Ted Rossman in a note to investors last Wednesday.

Total US household debt reached a record $18.59 trillion this year, with heavy reliance on loans for cars, education, homes, and day-to-day living. Credit bureau Experian estimated that Americans owed $17.57 trillion in the third quarter of 2024, a 2.4% increase from the previous year and more than $105,000 in liabilities per consumer.

Millennials carried the largest total average debt at $371,864 mostly from home loans. But when mortgages are excluded, Generation X leads instead, owing about $68,038 in non-housing balances. Without the ability to buy appreciating assets, lower-income Americans are dependent on credit.

“If you spend on rent, groceries, insurance, utilities, you will feel like the economy is collapsing. But if you spend on stocks, real estate, 401(k), business ownership, you feel like the economy is booming,” said one trader on social platform X.

Unemployment, job losses, and inflation takes a toll on the US economy

According to data collected by the Economic Policy Institute from state labor departments, there is a dramatic surge in continued unemployment insurance filings across Washington, Maryland, Virginia, Connecticut, and Oregon.

Federal claims in DC jumped more than 1,000% compared with 2024’s tallies, while Maryland recorded an increase of more than 500%. When looking at claims in all state-managed programs, the year-over-year gains for DC, Virginia, and Maryland were 53%, 29%, and 25% respectively.

US employers cut more than 150,000 jobs last month, the largest October reduction in more than twenty years. This will certainly become a talking point in the Federal Reserve’s December 9-10 FOMC meeting, after the longest US government shutdown blinded Jerome Powell and his camp with delayed key economic indicators. 

Traders using the CME FedWatch Tool have reduced the probability of a December interest rate cut to below 50%, down from the nearly 96% probability priced in just one month ago.

Investors had hoped for another rate reduction to support borrowing, consumer spending, and corporate investment during the slowdown. However, several Fed officials insist inflation is too high to justify more cuts at the end of 2025.

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