Dale Oxley doesn’t need to hear about rising odds of a U.S. recession to dread the future. For the West Virginia homebuilder, the downturn has already arrived.
“Everyone is going to have to tighten their belts,” said Oxley, the 48-year-old owner of a Charleston-area construction company. “The next couple of years are going to be difficult.”
As economists size up the chances of the first nationwide slump since 2009, pockets of the country are already contracting. Four states – Alaska, North Dakota, West Virginia and Wyoming – are in a recession, and three others are at risk of prolonged declines, according to indexes of state economic performance tracked by Moody’s Analytics.
The regions suffering the most are in the flop stage of the energy industry’s boom-to-bust cycle, and manufacturing-dependent areas hurt by a rising dollar are at risk of receding. Whether the weak links break the entire U.S. economy will hinge largely on a group that’s benefited from the energy price collapse: American consumers.
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“The impetus for weakening regional economies is the huge fall in energy prices and other commodities prices, which is taking a tremendous toll,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, who worries about a broadening into a national recession. “If the consumer were to falter for any reason, that would be a big problem.”
Job gains and losses are key factors that the National Bureau of Economic Research uses to chart U.S. expansions and recessions. Even as U.S. employers added 2.7 million workers in 2015, job cuts last year totaled 18,800 in North Dakota, 11,800 in West Virginia and 6,400 in Wyoming, according to the U.S. Labor Department.
The common thread? They all have concentrations of energy companies. A 72 percent plunge in crude oil prices since a peak in June 2014 has led to lower production and firings.
So far, Federal Reserve officials view the patches of hardship as isolated and the chance of a recession as remote. Chair Janet Yellen told Congress on Feb. 10 that falling energy prices “have caused companies to slash jobs and sharply cut capital outlays,” but she didn't expect a nationwide recession.
“There would seem to be increased fears of recession risk” reflected in tightening financial conditions, she said in her testimony. “We’ve not yet seen a sharp drop-off in growth, either globally or the United States, but we certainly recognize that global market developments bear close watching.”
Still, seven of the 50 states have had downturns in economic activity over the final three months of last year, according to tracking by the Philadelphia Fed.
Louisiana, New Mexico and Oklahoma are all at risk of recession, according to Moody’s. Wyoming and North Dakota’s economies have declined for at least the past 10 months, according to the Philadelphia Fed.