The continuing stable outlook for US state governments indicates our expectations for the credit conditions driving the sector over the next 12-18 months. The lengthening economic expansion will support continued revenue growth, helping states to meet rising costs for priority services and maintain reserves at record levels. While stabilization of oil prices has relieved an economic drag on energy-dependent states, other emerging regional differences, such as uneven labor and demographic trends, will create challenges. The chance of a near-term recession has diminished, but economic risks remain for states, including a sharp slowdown in the EU or an increased domestic economic impact from trade tensions. » Revenues will continue to rise but slower economic growth will temper gains. State tax revenues will rise about 4% in fiscal 2020, slower than the 4.9% increase in fiscal 2019 as national economic growth cools. Upward movement in equity markets will help boost capital gains realizations and therefore income tax revenues, while continued employment growth will support income and sales taxes. » Revenue gains will support higher spending on education and rainy day funds. States are adding spending to education at all levels to support teacher pay increases and offset previous reductions in higher education spending. Rainy day fund balances, already at a record high, will contribute to the state sector's strengthening recession preparedness. » Uneven economic and demographic trends will create fiscal challenges. Per capita income growth lags behind the US average in most states, allowing only a relatively small number to capture the most fiscal benefits from national income growth. Slow population growth, low rates of interstate migration and declines in the number of prime-age workers will limit labor force growth and act as a drag on expansion. » A national recession is unlikely in 2020 but states still face economic risks. Growth in the US is decelerating, although a recession is unlikely in 2020. Economic risks remain, however, including an increased impact from trade tensions on agricultural and manufacturing states, and potential changes to Medicaid that could lead to additional spending demands for some states. » What could change the outlook. A prolonged acceleration in economic and revenue growth would change the outlook to positive. A sharp economic downturn or a recession that depletes state reserves would trigger a negative outlook.