U.S. Economy Likely in ‘Stagnation Mode,’ Barclays Warns of 50% Recession Risk
Barclays defines stagnation as a state in which the economy is “susceptible to falling into recession, but not inevitably so.”
Quick overview
- Barclays reports that the U.S. economy is likely in a state of stagnation, which could last for a year or more.
- The probability of a recession within the next two years has risen to 50%, according to Barclays analysts.
- Key indicators suggest that the economy is vulnerable to recession, with estimates of stagnation probability ranging from 47% to 90%.
- Barclays anticipates that the Federal Reserve will implement rate cuts later this year, with expected reductions in September and December.
According to a report from the British banking giant, the U.S. economy is likely stuck in a state of stagnation that could persist for a year or longer.
Barclays analysts said the U.S. economy has likely entered “stagnation mode,” with the probability of a recession in the next two years rising to 50%.
In a research note, the bank explained that recent “turning points”—which incorporate payroll revisions—suggest “the underlying pace of U.S. growth has slowed to a level that makes it vulnerable to recession.”
Barclays added: “Several specifications suggest the U.S. is likely in stagnation, and potentially for a year or more. With this heightened vulnerability, the model places the odds of a recession within eight quarters at around 50%.”
The analysis is based on a regime-switching model that evaluates the likelihood of the economy being in one of four states: rapid expansion, expansion, stagnation speed, or recession.
Why Barclays Says the U.S. Is in Stagnation
Barclays defines stagnation as a state in which the economy is “susceptible to falling into recession, but not inevitably so.” The bank used two key indicators: the ratio of nonfarm employment to the labor force, and the unemployment rate—often measured through the Sahm Rule.
Both measures, Barclays said, “imply a high probability that the economy is in stagnation,” with estimates ranging from 47% to 90% when incorporating preliminary benchmark revisions to the payroll survey.
The results, according to Barclays, support expectations for Federal Reserve rate cuts later this year.
“Our findings provide some support to the expectations that the FOMC will pivot to rate cuts in September,” the bank wrote, adding that it anticipates 25-basis-point cuts in both September and December.
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