By Megan Leonhardt

The delay in tariff implementation sent stocks soaring, but markets couldn't hold the momentum as it became clear that the economic outlook remains cloudy.

Based on official data, economic conditions remain stable, but the combination of lost wealth, higher inflation fears, and uncertainty over what comes next could still lead to a pullback in spending and employment in the weeks ahead. Parsing the incoming data isn't just an exercise for Federal Reserve officials these days, investors need to be data-dependent as well.

"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."

Unfortunately, cooler-than-expected inflation data don't do much to assuage concerns over the latest tariff actions. Headline inflation came in at an unexpectedly cool annual rate of 2.4% in March, a significant slowdown from February's 2.8% pace -- and a step closer to the Fed's 2% target.

The latest data failed to provide any road map for how tariffs might seep into pricing pressures, since the flow through to consumer prices isn't immediate. Inventories are high and with consumers already price-fatigued, businesses could move "gingerly at first" to price in higher input costs, wrote Preston Caldwell, chief U.S. economist at Morningstar.

Rather than rely on lagging government data, investors should watch more up-to-date signals from real-time spending and employment data sets, many of which come from private sources. While more volatile, these sources can provide a better window into current trends.

Weekly credit-card data, for example, is usually ahead of the trends in the U.S. Census Bureau's monthly retail sales report. Data from Citi and Bank of America released Thursday finds Americans have continued to spend over the past month. Retail spending increased by 0.5% in March, according to Citi's aggregation of select retail categories among its customers' credit-card usage. That's compared with a decline of 0.8% in February.

Weekly attendance at Broadway shows, which typically draw the higher-income crowd that accounts for much of aggregate consumer spending, can also help gauge discretionary spending appetites. So far, turnout is still on an upswing as of April 6, according to data from industry group The Broadway League.

Another barometer for real-time spending can be found in weekly expenditures at restaurants. Though weak in February, restaurant spending was up 3.5% year over year as of March 30, according to Bloomberg data drawn from credit- and debit-card transactions.

The biggest driver of consumer spending is employment; major shifts in the number of Americans filing for unemployment benefits could signal deteriorating labor conditions. Through the first week of April, weekly growth in the Labor Department's initial jobless claims numbers has remained low.

Going forward there could be additional insight from WARN notices -- the 60-day notification of planned layoffs required of employers with more than 100 employees. The notices, which are tracked by the Cleveland Fed, are a leading indicator gauging the health of the private sector labor market. And with earnings season kicking off, watch for guidance from companies around employment and spending plans.

The burden of Trump's tariffs will be the make-or-break question for the current economic expansion. Watch the warning signs.

Write to Megan Leonhardt at megan.leonhardt@barrons.com

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April 11, 2025 13:06 ET (17:06 GMT)

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