Trump's tariff policy has raised fears of a recession. Here are the economic warning signs
- Several economic indicators suggest a potential recession, including declining stock prices and weakening consumer sentiment.
- While real estate and unemployment figures remain relatively stable, concerns exist about rising foreclosures and potential job losses.
- The Conference Board's index of leading economic indicators has declined for three consecutive months, signaling further economic deterioration.
The scent of recession is in the air, with tariffs likely to cause some painful adjustments and slow the economy. Hardly a day goes by when some economist isn’t raising his or her recession odds. We aren’t in a recession yet, but several worrisome signs have emerged — some that might flash false alarms but others that could signal a slump ahead.
Look for more going-out-of-business liquidations, "for sale" signs lingering longer on homes in your neighborhood, spreading homeless encampments and other indicators of stress if the economy weakens from here. However, these conditions have also been apparent during good times and are not among the relatively few early warning signals tracked by economists.
Even bankruptcy filings can be misleading as a recession harbinger. Filings do increase during recessions, but they have been rising for the past three years. Perhaps more telling, consumer inquiries about bankruptcy surged during the first quarter of 2025 to the highest level since early 2020, reports LegalShield, which predicts “a potential wave” of bankruptcy filings this summer.
So, what do economists rely on to predict recessions? Much key information can be found in the index of leading economic indicators compiled by the Conference Board, a nonprofit business-research group. This index includes 10 indicators, several of which had been weakening even before President Trump announced his tougher tariff policy in early April. Here are some areas that bear close watching:
Shifting stock prices
One key indicator relates to stock-market trends, as measured by changes in the Standard & Poor’s 500 index. Lower stock prices reflect declining consumer and business confidence. Also, market losses make investors feel poorer and less willing to spend money on nonessential items.
When the most recent Conference Board report for February was published in mid-March, the stock market at the time was a positive indicator. Not anymore. In the aftermath of Trump proposing higher tariffs on April 2, the S&P 500 has dropped sharply, down 6% just in the two-plus weeks since then.
Trends in real estate
The real estate picture remains generally healthy, despite some concerns such as an uptick in foreclosures around metro Phoenix, albeit from low levels, and a rise in "cost-burdened" tenants — those who spend more than 30% of their income on rent. More favorable signs include solid median home prices averaging $455,000 here despite more homes up for sale, and a surprising decline in evictions.
These and other indicators set the tone for real estate, though the Conference Board doesn't track them. Rather, to pinpoint the future direction for real estate activity, the group focuses on building permits for private housing. Recent numbers for metro Phoenix show a mixed picture, with permits up 21% for single-family homes last year but down 30% for multifamily units, according to George Hammond, an economist at the University of Arizona.
Other real estate segments have shown weakness, with office buildings among the most stressed. For example, 789,000 square feet of office space was under construction as of the fourth quarter of 2024, according to Colliers International. That was the lowest amount in more than 10 years, though other factors, including remote-work policies, likely played a role.
Meanwhile, a new sentiment survey among real estate investors, compiled by RCN Capital and CJ Patrick Co., has sunk to its lowest level since it was started two years ago. The survey takes quarterly readings of optimism or pessimism among investors in residential properties.
Uncertain unemployment
The U.S. unemployment rate stood at 4.2% in March, and 4.1% in Arizona. Those numbers aren't bad, but jobless rates aren't a leading indicator for predicting the direction of the economy. After the economy starts to sour, they will start climbing.
To measure the jobs picture on a more real-time basis, the Conference Board tracks average weekly initial claims for unemployment insurance, which were slightly negative as of February. Few metro-Phoenix employers have issued big layoff announcements in recent months, but that could change quickly if the economy weakens.
Credit and interest-rate movements
The Conference Board compiles a credit index and tracks the spread or difference between yields on 10-year Treasury bonds minus the federal funds rate. These indicators are somewhat complex and, as of the report published in March, they were flashing mixed signals, with no strong trend apparent.
If a recession materializes, the normal pattern would be for interest rates to ease. But with inflation expectations also rising, owing largely to higher tariffs, the Federal Reserve could face a tough choice between trying to boost economic activity while trying to keep inflation at bay.
During periods of economic weakness when lending activity slows, consumers with high credit scores sometimes can take advantage of attractive offers. For example, NerdWallet recently highlighted a limited-time sign-up bonus of 100,000 reward points on the Chase Sapphire Preferred Card after customers use it to spend at least $5,000 over three months. That’s up from a prior 60,000-point offer.
Consumer sentiment and expectations
Americans are feeling uneasy about the economy, and that is showing up in the data. Even before Trump’s tariff announcements, consumer expectations were the component that weighed down the leading indicators index most heavily as of the Conference Board's March report.
Since then, things have worsened. A more current gauge of consumer sentiment tracked by the University of Michigan showed substantial drops in confidence as of early April, as people prepare for what they think will be rising unemployment and inflation.
“Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation and labor markets all continued to deteriorate,” said Joanne Hsu, director of consumer surveys at the university.
Hours worked in manufacturing
The Conference Board tracks the average number of weekly hours worked in manufacturing industries. As of its latest report, that was the strongest of the leading indicators tracked. Whether that trend continues by the time the next report comes out April 29 is anyone’s guess.
One key goal of Trump’s tariff policy is to boost jobs in American manufacturing, and the expanded commitment by Taiwan Semiconductor Manufacturing Co. in Phoenix is a strong example of a recent success. However, while manufacturing employment may rise, it will take time, possibly years, for some of this improvement to be reflected. Companies just can't build new factories and hire legions of workers overnight.
New business orders
The Conference Board tracks three other measures to get a sense of the pace of business activity. One is new orders for consumer goods, and another is orders for non-defense capital goods. The group also compiles a separate index that tracks new orders. As of the most recent report published in March, one of these components was showing weakness, another was flat, and the third, slightly positive.
The Trump Administration has changed its tariff policy several times in recent weeks, creating the type of uncertainty that businesses fear. How much tariff-policy uncertainty affects orders is an open question.
Recession or not: Where do we go from here?
A recession hasn't been officially declared yet. Another nongovernmental group, the National Bureau of Economic Research, makes that call.
However, the leading indicators report from the Conference Board has declined slightly for three consecutive months, through February. When the group releases its next report on April 29, further deterioration seems likely.
Reach the writer at russ.wiles@arizonarepublic.com. Reporters Catherine Reagor and Corina Vanek contributed to this report.