Moody’s Analytics: Most States are Well Prepared to Weather a Recession
September 29 2022 - 6:00AM
Business Wire
The majority of US states have the resources needed to get
through an economic recession, according to a new study from
Moody’s Analytics. A record 43 states have the cash they need to
weather an economic slump without having to resort to severe
spending cuts or tax increases.
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The majority of US states have the
resources needed to get through an economic recession, according to
a Moody’s Analytics study. A record 43 states have the cash they
need to weather an economic slump without having to resort to
severe spending cuts or tax increases. (Graphic: Business Wire)
“States have never been in a better position to make it through
a recession,” said Emily Mandel, the study’s author. “State
policymakers seem 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 carry it through an economic downturn. Economists at Moody’s
Analytics ran stress tests on all 50 states to arrive at an
estimate of each state’s recessionary needs in the event of a
moderate recession. The study takes into account the impact of the
business cycle on state revenues and spending over two fiscal
years.
While the stress test results find most states prepared for a
recession, there is some variation in their degrees of readiness,
according to the study. In total, 39 states have the funds to
significantly reduce stress from a recession. Four states would
have to raise taxes or cut spending by less than 5% of their
budgets. However, seven states would have to resort to spending
cuts or tax increases of more than 5% of their budgets.
States overly dependent on tourism and consumer spending will be
most hard hit during a recession, according to the study. States
with agriculture and energy-based economies are better positioned
to weather the storm.
The bottom five states with less than a 10% revenue gap are:
- Illinois
- Alaska
- Arizona
- Mississippi
- New Hampshire
In contrast, the states most flush with cash 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 make stress-testing a higher priority.
“States may want to consider formulating targeted reserve levels,”
Mandel added. “Planning for a recession requires putting away
enough money today to prepare for a future downturn, without
stunting 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, faster decisions. Our
deep risk expertise, expansive information resources, and
innovative application of technology help our clients confidently
navigate an evolving marketplace. We are known for our
industry-leading and award-winning solutions, made up of research,
data, software, and professional services, assembled to deliver a
seamless customer experience. We create confidence in thousands of
organizations worldwide, with our commitment to excellence, open
mindset approach, and focus on meeting customer needs. For more
information about Moody’s Analytics, visit our website or connect
with us on Twitter and LinkedIn.
Moody's Analytics, Inc. is a subsidiary of Moody's Corporation
(NYSE: MCO). Moody's Corporation reported revenue of $6.2 billion
in 2021, employs over 14,000 people worldwide, and maintains a
presence in more than 40 countries.
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