Barclays says the U.S. economy is likely in a stall, with a 50% chance of recession in the next two years

Barclays analysts say the U.S. economy has likely entered a “stall state,” with recession risks over the next two years now close to 50%.

In a new research note, the bank explained that its updated “tipping points” model, which factors in recent payroll revisions, indicates that U.S. growth has slowed to a pace that leaves it vulnerable to slipping into recession. Barclays wrote: “Various specifications suggest the U.S. is likely in a stall state, and perhaps has been for a year or more. With this heightened susceptibility, the model places odds of a recession within eight quarters at about 50%.”

The assessment is based on a regime-switching model that evaluates whether the economy is in one of four states: rapid expansion, expansion, stall speed, or recession. Barclays defines the stall state as one where the economy is at risk of falling into recession but not inevitably headed there.

Two measures were central to the analysis: the ratio of nonfarm payrolls to the labor force and the unemployment rate, including through the Sahm Rule. Barclays said both measures signal an elevated likelihood of a stall state, with probabilities ranging between 47% and 90% when early benchmark revisions to payroll surveys are considered.

The findings align with expectations for Federal Reserve rate cuts later this year. Barclays said its model supports the outlook for the Fed to begin cutting rates in September, projecting two 25-basis-point reductions — one in September and another in December.