West Coast Economic Warning Signs Point to Potential Recession

Ryan Lewis
Oct 22
3 min read

The Storm Brewing on the Pacific Coast

Oregon, Washington, and California—states representing over one-third of U.S. GDP—are exhibiting alarming signs of economic distress that could signal broader national implications. From surging law school applications to record auto loan defaults, multiple indicators suggest the West Coast is teetering on the edge of recession in late 2025.axios+3

Job Market Deterioration Accelerates

Washington lost 5,400 jobs year-over-year through August 2025, with the unemployment rate holding at 4.5% and underemployment reaching 8.7%—well above the national 7.8%. State economist Dave Reich warns the economy has "slowed to stall speed," with employers in a "no-hire, no-fire situation" amid political uncertainty and federal cuts.ofm.wa+2

Oregon's situation proves equally dire, with employment declining 1.2% year-over-year by July 2025 and unemployment climbing to 4.9%. The state's GDP growth of just 1.4% in Q1 2025 trailed the national 2.0% rate by a significant margin, continuing a troubling pattern where Oregon lags behind by 1.2-1.5 percentage points.commonsenseinstituteus+2

California lost payroll jobs over the first seven months of 2025, with unemployment rising above 5.5%—tied for highest among all states. The state's technology sector, entertainment industry, and manufacturing base all experienced contraction, with AI-driven layoffs replacing workers in software development, web design, and data analysis positions.newsroom.ucla+2

Consumer Stress Reaches Breaking Point

Auto loan defaults provide perhaps the clearest signal of consumer distress. With repossessions at their highest levels since the Great Recession and delinquencies affecting borrowers who previously had solid credit, the warning signs are unmistakable. Nearly 20% of new car buyers now face monthly payments exceeding $1,000, with loan terms extending to seven years—a recipe for long-term financial strain.lendingtree+1

California leads the nation with over $167 billion in total credit card debt, adding $3.5 billion in Q2 2025 alone. Average household credit card debt reached $13,847, second only to Hawaii, indicating West Coast residents are increasingly relying on high-interest borrowing to maintain spending.patch

The LSAT Surge: Desperation or Opportunity?

When job markets weaken, graduate school applications historically surge—and 2025 proves no exception. Law school applications jumped 33% year-over-year, with LSAT registrations increasing 54% for August 2025. This unprecedented spike suggests college graduates and career-changers see limited opportunities in the current economy and are seeking refuge in advanced education.law .buffalo+4

Housing Market Weakness Compounds Problems

West Coast housing markets show significant cooling, with prices declining across major metropolitan areas and inventory rising as homes stay on the market longer. Consumer confidence dropped to 94.2 in September 2025—the lowest since April—with expectations remaining below the 80 threshold that historically signals recession.cbsnews+3

California's consumer sentiment plummeted 11.7 points in one quarter, from 80.3 in December 2024 to 68.6 in March 2025. Retail sales declined 0.9% in May 2025, reflecting reduced consumer spending amid inflation fears and economic uncertainty.siepr.stanford+2

What This Means for the Region

According to Moody's Analytics chief economist Mark Zandi, Washington is among 22 states either in or near recession, representing approximately one-third of U.S. GDP. If California or New York enter full recession, the entire national economy would likely follow.newsweek+2

The West Coast's elevated export exposure makes the region particularly vulnerable to tariffs and trade tensions. Oregon's three largest export sectors—computer and electronic products, transportation equipment, and machinery—face headwinds from elevated dollar strength and retaliatory trade measures.oregon+1

The Bottom Line

Multiple converging indicators—surging law school applications, record auto loan defaults, rising unemployment, declining consumer confidence, and mounting credit card debt—paint a troubling picture for Oregon, Washington, and California. While economists officially maintain recession isn't the most likely outcome, the probability is "elevated relative to normal times," and the data suggests the West Coast may serve as the canary in the coal mine for broader U.S. economic challenges ahead.tvw+2

For businesses, policymakers, and residents across the Pacific states, the message is clear: prepare for potential economic turbulence, as the warning signs are flashing red across nearly every major indicator.morningstar+2