5 Things to Watch for Early Signs of an Economic Downturn

A delay in the implementation of enormous tariff increases sent stocks soaring on Wednesday, but the economic outlook remains cloudy.

President Donald Trump’s announcement of a 90-day pause on individualized tariffs on a number of major trading partners sent the S&P 500 up 9.5% on Wednesday afternoon, marking the biggest percentage gain since 2008, according to Dow Jones Market Data. Nevertheless, recession fears loom large as the new baseline tariff of 10% on almost all imports remains in place. The Trump administration continues to pile tariffs on China, antagonizing the U.S.’s third-largest trading partner.

That is unlikely to provide much of a boost to confidence among businesses or consumers. The combination of lost wealth, tariffs, and worry about what comes next could still lead to a pullback in spending and employment.

“Pausing reciprocal tariffs excluding China does not mean the U.S. economy has avoided a slowdown in growth and rise in inflation," writes Citi economist Andrew Hollenhorst. “Uncertainty over trade will persist and non-China imports may now surge, damping growth in the second quarter."

Here are several indicators to watch for early signs of a weakening economy.

Steady Employment

The biggest driver of consumer spending, of course, is employment. While much of the official government labor data is released on a lag, watch for major shifts in the number of Americans filing for unemployment benefits. Jobless claims are released every Thursday by the Labor Department for the preceding week.

The four-week moving average of initial claims, which smooths out some volatility, moved down to 223,000 in the week ending April 5. That is roughly in line with the stable range claims have maintained for much of the year.

WARN notices—the 60-day notification of planned layoffs required of employers with more than 100 employees—are also worth watching. They have been on the rise in recent months, though they are still relatively low in historical terms, according to data collected by Cleveland Fed researchers.

WARN notices provide insight into the health of the private sector. Government jobs at the federal, state, and local level aren’t covered.

Business Outlook

Earnings season is set to kick off on Friday with results from some of the U.S.’s biggest banks. Investors should focus on what companies picking their way through the current landscape of on-again, off-again tariff policies have to say about the outlook.

“The economic data will be noisy for a couple of months especially with front running of tariffs by businesses and consumers," writes Carol Schleif, chief market strategist at BMO Private Wealth. “Better reads for what the future holds will likely be gleaned from earnings conference calls, such as how businesses are adapting, or preparing to adapt and what their hiring and expansion plans are."

A major question coming out of Trump’s pullback on Wednesday is whether that will provide businesses with enough certainty to re-engage on investment and hiring, writes Stephen Stanley, chief economist at Santander. If it does, then the “much-ballyhooed" recession is already over, though it is too soon to write off a difficult second quarter for businesses, Stanley says.

Even what companies don’t say is worth noticing. Delta Air Lines, for example, pulled its 2025 guidance on Wednesday over trade war concerns. Walmart, meanwhile, didn’t provide updated guidance on its income growth for the first quarter and left its fiscal 2026 outlook unchanged.

“We just don’t know enough to say we’re not going to make this year and our attitude is we’re not giving up on that and we can manage these things, and if that changes, at the appropriate time we would update you," CEO Doug McMillon said during the retailer’s investor day Wednesday.

Analysts and economists alike also are keeping a close eye on credit spreads, which have been widening of late, though they narrowed on Wednesday. The gap between yields on investment-grade debt and ultrasafe Treasury securities would have to break the 2 percentage-point level to start signaling a recession, writes Benoit Anne, senior managing director for MFS Investment Management. The investment- grade corporate debt spread, as measured by the ICE BofA US Corporate Index Option-Adjusted Spread, was 1.21 percentage points as of the close on Wednesday.

Consumer spending

Richmond Fed President Tom Barkin called consumer spending the “trigger" on the U.S. economy on Wednesday. The sector represents nearly 70% of real gross domestic product growth, which is why it is worth watching for signs that downbeat sentiment is actually hurting spending.

Spending started off the year slow, but has seen a bit of a rebound in March. During the first two weeks of March, credit-card spending tracked modestly higher by 0.2% month over month, according to seasonally adjusted data from Citi. The volume of retail transactions increased 3.1% from a year earlier for the full month, compared with 2.0% growth in February, according to the latest data from Bloomberg Intelligence.

Trends in restaurant spending can offer additional insight because when consumers grow anxious about their finances, dining out typically is one of the first expenditures they cut.

Restaurant spending was up 3.5% year over year as of March 30, and the three-week trend is improving, according to Bloomberg data drawn from credit- and debit-card transactions.

Anne Walsh, chief investment officer of Guggenheim Partners Investment Management, says she has been taking stock of how busy shopping malls and restaurants tend to be. On a recent trip, “The mall was packed, much more so than Christmas," Walsh says, adding that she is also seeing full restaurants.

There certainly may be a slowdown ahead, but for now, there are signs that spending is holding up. “The consumer has been so important in this cycle," Walsh says. “That’s the one thing I do pay the most attention to."

Given the market’s frightened reaction to the April 2 tariff news, Bill Adams, Comerica Bank’s chief economist, expects that trade policy uncertainty will be more of a drag on economic growth than it was during the first Trump administration. How much of a burden it will be is the make-or-break question for the current economic expansion.

Watch the warning signs.