These 10 States Could Best Weather a Catastrophic Recession

Which U.S. states would skate through an economic downturn? Start thinking North Dakota and go from there. Is your home state safe?

Author:: Brian O'Connell
Publish date:: Oct 13, 2017 2:00 PM EDT

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Which states would survive nicely in the event of another U.S. recession? It's a fair inquiry, with the prospect of an economic downturn not out of the question, given frequent remarks from Wall Street experts that the stock market has topped out and that overall economic growth continues to come in fits and starts. Sure, few Americans are worried about a recession now, but there is a 60% chance of a global recession in the next 18 months. In that context, it's helpful to know if your state has a good chance of standing tall where others fall in tough economic times. Here are the states that should fare the best in a recession.

But is a recession coming?

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A recent study by Fit Small Business reveals that the plain states in general would fare best in a recession. "One of the reasons we think plain states like North Dakota would do the best in a downturn is because their citizens don't overextend themselves with debt," says Marc Prosser, publisher at FitSmallBusiness.com. "North Dakota is at the top of the list (along with Nebraska, South Dakota, and Iowa) that have the lowest credit card debt per person of all of the 50 states, with an average credit card debt of less than $5,000 per resident."

West Virginia has the most manageable debt load of any state, says Prosser. "West Virginia's outstanding debt is just 1.21 times the amount of income the state taxes in per year," he notes. "This compares to California, the worst of the states, which has a debt equal to 2.34 times its annual income."

In a recession, household income levels decrease, and in high income tax states like California, Illinois and New Jersey, that's a problem in a recession. "Conversely, there are a few state, like Florida, that have no income tax, and would thereby, be less affected by a drop in residents' income," Prosser states.

The Centennial State is ranked second in the U.S. in overall economic growth, second in employment stability, and fourth in business environment, according to a recent survey from U.S. News & World Report. Those high rankings attest to the likelihood that Colorado would stand stronger than most states in the event of turbulent economic times.

Aside from glistening mountain vistas and a world-renowned Salt Lake, Utah ranks first in the U.S. in employment health and fifth in business environment, according to U.S. News & World Report. Additionally, Utah bests other states in key economic measures like gross domestic product growth GDP, the number of fastest-growing firms, business startup growth and abundant high-technology jobs, according to a 2017 study from Wallet Hub.

The Evergreen State sits on top of the list of Wallet Hub's "Best State Economies" for 2017, mostly due to its "best-in-the-nation" ranking in overall economic activity and equally high ranking in "economic innovation potential," suggesting that it's creative business base could withstand a U.S. recession better than most states.

In a wide-ranging study by Expert Market that combined data from the Bureau of Labor Statistics, Bureau of Economic Analysis, the Kauffman Index and property experts Zillow, Oklahoma placed second (behind North Dakota) in overall state economic health. Why Oklahoma? The Sooner State ranked second in GDP growth, and second in household income. Home values are stable, too, which is an important consideration in a recession, as Oklahoma ranks sixteenth in the nation in homeownership stability.

The Lone Star State has long been known as an economic stalwart, with a solid business base, low taxes, big energy production and robust urban business hot spots like Dallas, Houston, San Antonio, and Austin. The Expert Market's study ranks Texas third on its "healthiest state economies" list, tabbing the state as the third best U.S. state for GDP growth, and listing Texas as one of the top U.S. states in terms of home values and employment. With no state taxes, Texans would stand a better chance of surviving a recession than high tax states, as household incomes wouldn't take as much of a substantial hit.

The Volunteer State makes our list due to a somewhat under-reported, yet key, economic metric: state pension health. "You really don't hear much from financial experts about states' pension plan health," says David Gratke, CEO of Gratke Wealth, LLC, in Portland, Ore. "But does a household want to see their taxes go up each year -- while public services decline -- to make up for the nearly $4.0 trillion unfunded pension liability in the U.S., especially after a sizable stock market correction?" That's where Tennessee shines. On the analytical website USPensionTracker.org, Tennessee has the lowest pension debt burden, as measured on a household by household basis, in the U.S., at $19,586 per home. (Compare that figure to heavy pension debt-laden states like California, at $92,748 per household.)

Gratke points to other low pension debt states, like Indiana, which holds a pension debt per-household of only $19,686, according to USPensionTracker.org. "Unfunded pension liabilities, per household, are another tax, albeit a very hidden tax," he states. The Hoosier State also ranks high in overall economic health and is well-positioned to withstand a recession. "On a short-run basis, Indiana has between 1.76 and 3.06 times the cash needed to cover short-term obligations, states Eileen Norcross and Olivia Gonzales, in a 2016 report from Mercatus entitled "Ranking the States by Fiscal Condition." "Revenues exceed expenses by 6%, and net position improved by $285 per capita in the fiscal year 2015. Plus, Indiana's trust fund solvency is among the best in the country," she says.

North Dakota

A recent study by Fit Small Business reveals that the plain states in general would fare best in a recession. "One of the reasons we think plain states like North Dakota would do the best in a downturn is because their citizens don't overextend themselves with debt," says Marc Prosser, publisher at FitSmallBusiness.com. "North Dakota is at the top of the list (along with Nebraska, South Dakota, and Iowa) that have the lowest credit card debt per person of all of the 50 states, with an average credit card debt of less than $5,000 per resident."