The Pacific Recession: California, Washington, and Oregon Are America’s Economic Canaries in the Coal Mine

As the national economy teeters, the Pacific states are already feeling the pain of contraction and job losses

The tech hubs and export powerhouses that once drove America’s growth engine are now sputtering. From Silicon Valley to Seattle’s tech corridor to Portland’s manufacturing belt, the West Coast economy is experiencing a sharp deceleration that threatens to drag the nation into recession.

While the broader U.S. economy has shown resilience through the first half of 2025, California, Washington, and Oregon are confronting a more sobering reality: stagnant job growth, rising unemployment, and mounting uncertainty over trade policy that disproportionately impacts their export-heavy industries.

The warning signs are unmistakable. Mark Zandi, chief economist at Moody’s Analytics, estimates that 22 states plus the District of Columbia are now experiencing persistent economic weakness and job losses. According to an interview Zandi gave to MarketWatch, “The economy is still not in recession, but the risks are very high. We’re on the precipice.”

California and the other West Coast states represent some of the most vulnerable economies in Zandi’s analysis. What makes their situations particularly precarious is that these aren’t cyclical slowdowns, but structural challenges amplified by federal policy uncertainty.

California’s Employment Crisis

The Golden State’s economic troubles run deep. California lost 50,000 payroll jobs in the first four months of 2025, and the unemployment rate climbed above 5.3 percent, more than a full percentage point higher than the national average, according to UCLA Anderson Forecast’s second quarterly report released in June 2025. The forecast warns that California is experiencing an employment contraction that will persist through the end of the year.

The third quarterly report from UCLA Anderson, released in October 2025, paints an even grimmer picture. Data on employment over the past eight months suggest that the state is experiencing an employment contraction, one that is expected to persist through 2025. The sectors that have historically driven California’s superior growth, including technology, durable goods manufacturing, entertainment, and logistics, have been stagnant or in decline. Recovery is not expected until late 2026, when a tech and construction resurgence may finally materialize.

The state’s Department of Finance May Revision forecast projects a “growth recession” for California, with real GDP contractions of 1.3 percent and 1.6 percent annualized in the last two quarters of 2025 in its mild recession scenario. The state unemployment rate could peak at 6.7 percent in 2027 under this scenario, although it would still be below the levels reached during the early 2000s recession.

What’s driving the weakness? California entered 2025 growing at half the rate of the U.S. economy, leaving it without the momentum evident nationally. The UCLA Anderson Forecast notes that higher tariffs, elevated at approximately 15 percent, are increasing costs across manufacturing and trade-related sectors, contributing to inflation and weakening competitiveness.

Washington’s Tech Turbulence

Washington state faces its own set of challenges, centered mainly on its tech sector. The state’s Economic and Revenue Forecast Council reported in September 2025 that employment growth forecasts were revised downward to just 0.3 percent for the year, down from 0.5 percent projected in June. The unemployment rate is expected to climb from 4.5 percent in 2025 to 4.9 percent in both 2026 and 2027.

Microsoft’s recent layoff of 3,200 employees epitomizes the sector’s struggles. Other tech giants, including Google and Meta, have also reduced their workforces. “That sector has been a real source of employment growth for us for years,” said Dave Reich, executive director and chief economist for Washington’s Economic and Revenue Forecast Council, in September testimony.

Between August 2024 and August 2025, Washington businesses shed an estimated 5,400 jobs overall, with the deepest losses in professional and business services (down 18,400 jobs) and retail trade (down 3,700 jobs). The only bright spots were education and health services, which added 19,300 jobs, and the transportation and warehousing sector.

The state faces significant headwinds from federal policy uncertainty. Reich warned in September that “there was a significant amount of uncertainty around the forecast” due to U.S. tariffs, retaliatory tariffs, and potential federal interest rate changes.

Oregon’s Manufacturing Recession

Of the three states, Oregon may face the most immediate pain. The state lost 25,000 jobs over the past year, a dramatic reversal from the 25,000 jobs created the year before, according to Chief Economist Carl Riccadonna’s testimony to state lawmakers in August 2025. The unemployment rate has risen to 4.7 percent, above the national average.

Oregon’s Office of Economic Analysis characterizes the situation as a “manufacturing recession.” Between December 2023 and December 2024, Oregon lost 2,500 manufacturing jobs. The situation has worsened considerably in 2025, with manufacturing, trade, transportation, professional and business services, and construction bearing the brunt of escalating trade tensions.

The state’s May 2025 economic forecast warns that Oregon is “highly vulnerable to national priorities relating to tariffs, immigration, and federal expenditures.” Exports and manufacturing play outsized roles in the state’s economy, meaning trade tensions are borne disproportionately, particularly by key industrial pillars such as agriculture, semiconductors, and the sportswear and apparel industries.

State GDP growth over the last four quarters has averaged just 1.3 percent, well below the national pace, and forecasters project national economic growth for 2025 has been slashed from 2 percent to just 0.8 percent. Oregon’s growth is expected to lag even further behind. The state’s Office of Economic Analysis estimates the risk of recession over the next 12 months at 25 percent, significantly higher than the typical 10-15 percent baseline risk.

Revenue projections have been revised downward by approximately $500 million across the current and next biennium, according to the May 2025 forecast. By August, the Trump administration’s tax and spending policies were projected to result in $888 million in revenue losses over two years for Oregon.

The Tariff Factor

All three states share a common vulnerability: exposure to international trade. The effective tariff rate of approximately 15 percent, with threats of further escalation, has created unprecedented uncertainty for businesses. This particularly impacts West Coast ports and the industries that depend on them.

As the Oregon forecast notes, “A parallel outcome in the present environment would put state economic activity close to stagnation.” The tariffs are functioning as a de facto tax on businesses and consumers, slowing labor markets and reducing income tax collections.

For Washington and Oregon, which rely heavily on exports to Asian markets, the trade tensions pose existential questions about their economic models. California’s entertainment and tech sectors face different but equally serious challenges as global supply chains reorganize and consumer spending weakens.

What’s Next?

The coming quarters will be critical. California expects its weakness to persist through late 2026 before recovery begins. Washington’s slower growth trajectory is expected to continue through 2027. Oregon faces the highest near-term recession risk among the three states.

All three states are banking on resilient consumer spending and the hope that the Federal Reserve’s monetary policy adjustments will support, rather than hinder, economic activity. But with unemployment rising and job creation stalled, consumer confidence remains fragile.

The broader question is whether these regional contractions will spread nationally. As Zandi noted, if either California or New York falters significantly, it could tip the entire U.S. economy into recession. For now, the West Coast is serving as an early warning system, and the signals it’s sending are increasingly alarming.