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Investing.com -- The U.S. economy has likely entered a “stall state,” with the risk of recession within two years rising to around 50%, according to Barclays analysts.
In a research note, the bank said its updated “tipping points” model, which incorporates recent payroll revisions, suggests “the underlying pace of US growth has decelerated to a pace that makes it vulnerable to a recession.”
Barclays added: “Various specifications suggest that the US is likely in a stall state, and perhaps for a year or more. With this heightened susceptibility, the model places odds of a recession within eight quarters at about 50%.”
The analysis draws on a regime-switching model assessing the probability that the economy is in one of four states: rapid expansion, expansion, stall speed, or recession.
Barclays said the stall state is defined as one where the economy is “susceptible to entering a recession, but it is not a foregone conclusion.”
Two key indicators were used: the ratio of nonfarm payroll employment to the labor force and the unemployment rate, often referred to through the Sahm Rule.
Barclays said both measures “imply an elevated probability that the economy is in a stall state,” with probabilities ranging from 47% to 90% when factoring in early estimates of upcoming payroll survey benchmark revisions.
Barclays said the results support expectations for Federal Reserve rate cuts later this year.
“Our results offer some support for expectations that the FOMC will pivot to rate cuts in September,” the bank wrote, adding it expects 25-basis-point cuts in both September and December.