Half the Body is Failing: Why Virginia May Already Be in Recession

[the Balance Sheet is based on a unique algorithm developed after Trump fired the head of BLS after they shared a bleak jobs report—therefore we can no longer fully trust government reported data] This summary is an output of that algorithm with key inputs and prompts given news over the last week. Here is October 13th, 2025.

The headlines arrived with a dull thud last week: Nearly half of U.S. states are already in recession, Moody’s Analytics warned. The phrase barely rippled the markets, already drunk on AI optimism and algorithmic sugar highs. But for anyone paying attention to the cells of the real economy — the wages, the trucks, the small shops, the families — the news felt less like a shock than a confirmation of what our bodies already knew.

Moody’s call isn’t built on Wall Street hunches. It’s based on a collection of state-level “coincident indicators” — local employment, income, and output trends that together tell you whether the heart is beating faster or slower than the national pulse. When those indicators contract, it means the cells are starving even if the patient still smiles for the photo. And by that measure, nearly half the states — including Virginia — are quietly sliding into contraction.

Virginia’s inclusion in the list is telling. On paper, the Commonwealth looks strong: a tech corridor buzzing in Northern Virginia, federal contractors with six-figure salaries, and a stream of defense money flowing down from D.C. But if you zoom out from the spreadsheets and look at the living organism beneath, you see something else: a body that’s running out of breath.

The Weldon Cooper Center at the University of Virginia estimates the state will lose roughly 32,000 jobs in 2025, driven largely by a cooling federal sector and a slowdown in private hiring. In rural Virginia, the slowdown is even more visceral. Hardwood exports to China have fallen sharply as the trade war grinds on. Farmers who once sold soybeans to Shanghai are staring at empty silos. Timber demand has slumped, and truck freight through the I-64 corridor is slowing. In the global body economy, Virginia’s lungs — trade and transport — are wheezing.

Meanwhile, the housing market, Virginia’s skeleton, is creaking. Mortgage rates hovering near seven percent have frozen buyers in place. Inventory is rising in cities like Richmond and Charlottesville even as prices soften in rural counties. Construction has stalled. Builders are backing away from speculative projects. The real estate agents whisper it quietly: We’re back to 2011 volumes.

Even the blood flow — capital — is tightening. The Virginia Secretary of Finance’s November 2024 GACRE Reportwarned that the state’s revenue growth had “slowed markedly,” with weaker individual income taxes and a contraction in corporate receipts. Local banks are seeing higher delinquencies, especially in commercial property loans. The “microvasculature” of small-town credit is starting to clot.

And then there’s the immune system — the ability to heal. Normally, Virginia can fall back on the federal government for stability. But that safety net is fraying. Layoffs in Washington are bleeding into Fairfax and Arlington. A government shutdown looms, threatening to freeze paychecks and delay contracts. If that happens, the impact on the state’s service economy will be immediate and sharp. “Flying blind amidst heavy fog is a dangerous proposition,” Gregory Daco, chief economist at EY-Parthenon, warned this week in the New York Times, referencing how a shutdown would cripple data reporting. That same blindness extends to policymakers, who will be trying to steer the ship without radar.

So, yes — by any cellular measure, Virginia is in a localized recession. Maybe not a headline one, but a lived one. The heart still beats, but the limbs are cold.

At The Balance Sheet, our model reads this differently from the conventional economists. GDP, like a body temperature, only tells you so much. The real story lives in the cells: wages, freight, rents, credit, tourism, trade. In our framework, Virginia’s cellular vitality has been weakening since midsummer. Freight and timber are down. Consumer spending has flattened. Tourism is softening, with arrivals to Washington, D.C. down nearly nine percent year to date. Even optimism — the oxygen of economic metabolism — is fading.

Our Stagflation Index this week rises to roughly 60 percent, its highest reading yet. Inflation is sticky, growth is uneven, and credit stress is spreading. Recession risk rises to 25 to 30 percent, reflecting the state-level downturns now visible in data. The so-called “soft landing” narrative? Down to maybe 15 percent, if that. The traffic light on our Structural Risk Map has shifted from yellow to deep orange.

The irony is that none of this shows up in the S&P 500, which jumped 450 points Monday after a brutal Friday drop triggered by former President Trump’s threat to slap 100 percent tariffs on Chinese goods — especially rare earth minerals. The markets bounced back not because the fundamentals improved, but because traders believed the Fed would blink first. Take the AI sector out of the equation, and by any historical metric we’d already be in recession.

Economists and journalists often forget that economies are not equations; they are living organisms. The lungs of trade, the heart of credit, the muscles of labor, the bones of housing — they all depend on the mitochondria that power each cell: households, small businesses, and workers. When those mitochondria are starved, the body’s vitality fades long before the thermometer drops.

Virginia’s slowdown is not an isolated fever. It’s a symptom of a national metabolism that’s breaking down into regional imbalances — some organs still surging, others failing quietly. And unless those energy flows are restored — through productivity, wages, or trust — the body risks sliding into a full-blown stagflationary illness.

For now, Moody’s diagnosis seems right. The patient isn’t in crisis, but the color has drained from its face.

Sources:

Moody’s Analytics State Coincident Indexes (October 2025)
Axios Richmond (May 13, 2025): “Virginia Forecasts 32,000 Job Losses in 2025”
Virginia Secretary of Finance – GACRE Economic Outlook (Nov. 2024)
New York Times (Oct. 12, 2025): “A Looming Shutdown Threatens to Blind the Fed”