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US economy experiences challenging times

Difficult days are ahead for the American economy! This is the firm stance of Barclays currency strategists. They suggest that the US economy has entered a state of stagnation and that the risk of a recession within two years has risen to nearly 50%.

The bank’s analysts note that their updated “turning point” model, which incorporates recent employment data revisions, points to worrying trends. “The underlying pace of US growth has decelerated to a pace that makes it vulnerable to a recession,” Barclays emphasizes.

The analysis is based on a regime-switching model that evaluates the probability of the economy being in one of four states: rapid expansion, expansion, stagnation speed, or recession. Barclays currency strategists define the current state of stagnation as a situation where the economy is “susceptible to entering a recession, but it is not a foregone conclusion.” The experts’ words provide some hope!

At the same time, Barclays notes that there are different specifications that show that the US economy is in a state of stagnation. This has already lasted a year or more. With this heightened susceptibility, the model estimates the chance of a recession within eight quarters at around 50%.

The research used two key indicators: the ratio of nonfarm employment to the labor force and the unemployment rate.

According to Barclays analysts, both indicators imply a heightened probability that the economy is in a period of stagnation, with a plausible range of 47% to 90% when early projections of upcoming employment data revisions are included.

In the experts’ opinion, the current findings support market expectations of Federal Reserve rate cuts in 2025. Our results offer some support for expectations that the FOMC will pivot to rate cuts in September,” the bank noted. Analysts added that they expect two rate cuts of 25 basis points each in September and December.

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