Economic slowdowns can stir headlines and market volatility, and it can be hard for investors to separate signals from noise amid breaking news. This is where economic indicators can help: They track specific economic factors over time to take an economic pulse. 

When many of the most-watched economic indicators are flashing caution, it can prompt questions about what’s next for growth, interest rates, and consumer confidence. Predicting the future isn’t possible, but understanding these signals may inform financial decisions and help manage market volatility for a more resilient portfolio.

Busy signals

There are several metrics that financial professionals watch to check the pulse of the economy. These indicators may track interest rates, consumer confidence, or hiring trends. No single metric tells the full story, nor can it predict what’s coming next, but they may be able to flash caution signs before major economic moves occur.  

Yield curve

One of the most closely watched recession indicators is the yield curve — the difference between short- and long-term Treasury rates.1 Normally, long-term bonds carry higher yields (or interest) than short-term ones. When yields on short-term bonds exceed long-term bonds, known as an inverted yield curve, it may indicate that there’s slower growth ahead.  

The curve has preceded every U.S. recession since the 1960s (though its timing and predictive value varies). It has also steepened globally throughout April, which may indicate changing expectations about future interest rates and economic growth.^2,3 

Read more: How to help protect your 401(k) during stock market volatility

Consumer sentiment

Consumer sentiment measures how households feel about the current economy as well as the future. This indicator reflects attitudes toward personal finances, economic inflation, job security, and other economic conditions. Less spending tends to happen when sentiment declines, which can further indicate that people are less confident about the economy’s stability.

The University of Michigan’s Consumer Sentiment Index dropped to 50.8 in April from 57.0 in March, reflecting growing economic discussion about inflation and the job market.⁴ With 100 representing the level of consumer confidence when the index was established in the 1960s, a drop such as this can indicate that consumers are feeling more cautious than usual.

The overall economic picture remains mixed, even if consumers are feeling bearish. Nonfarm employment remains at record levels, and industrial production has only slightly declined from recent peaks, signs of underlying strength.⁵ 

Jobs report

The U.S. Bureau of Labor Statistics (BLS) releases a monthly report that tracks the health of the job market.⁶ Although technically considered a lagging indicator, meaning it reflects changes that have already occurred, the report remains one of the most closely watched snapshots of overall economic conditions.

The jobs report covers key metrics like nonfarm payroll growth, the unemployment rate, labor force participation, and wage gains. Taken together, these numbers offer a real-time look at the strength of the labor market. Economists use it to track growth, inflation pressure, and household spending power. Markets watch these reports closely, as they can shape expectations around interest rates, corporate earnings, and broader economic momentum. 

Economic policy

Several economists indicate that much of the present market volatility stems from shifting economic policies.⁷ Although the Federal Reserve paused its rapid tightening cycle, policymakers have kept interest rates elevated, maintaining the federal funds target range between 4.25% and 4.5% as of March.^8,9 The Fed’s decisions remain data-dependent, meaning the likelihood of rate cuts may shift depending on market conditions.  

Beyond monetary policy, trade-related developments have also affected economic forecasts. New tariffs have contributed to a downgrade in U.S. gross domestic product (GDP) projections, now expected to grow just 1.4% in 2025 (compared to 2.2% earlier estimates). Some economists now put the probability of a recession this year at 45%, the highest since late 2023.¹⁰

The impact of ongoing international trade talks, tariffs, and internal economic policies is still in flux. How they impact the economy, consumer sentiment, and inflation has yet to be fully determined. 

Read more: Game plan for managing investment market volatility 

Being “signal-smart”

Understanding indicators helps investors prepare for economic volatility sooner. That can go a long way when volatility may impact a person’s investments for the short- and long-term. The next step is building a durable financial foundation.  

A solid financial bedrock may include growing an emergency savings fund, paying down high-interest debt, and diversifying across asset classes. This could help reduce vulnerability during slow-growth periods.

Cash management strategies are also evolving. Money market fund assets hit a record $7.03 trillion in March reflecting growing interest in liquidity-focused investments.¹¹ Other savers are taking advantage of attractive interest rates in T-bills, certificates of deposit (CDs), and high-yield savings accounts, which are now offering some of the best returns in more than a decade.

Opportunities amid economic shifts

Economic indicators may help forecast investment opportunities, particularly for long-term investors. Temporary declines could present buying opportunities, especially for those using dollar-cost averaging to invest consistently over time. This strategy allows investments to continue without the pressure of market timing, smoothing volatility and potentially reducing average cost over the long term.

Current higher interest rates are yielding tangible benefits for savers. CDs and T-bills now offer returns well above their pre-2022 averages, and many high-yield savings accounts provide APYs above 4%. These vehicles allow investors to earn while maintaining flexibility and capital preservation.¹²

Strategically, staying invested with a balance between risk assets and liquid reserves can help position portfolios for both resilience and growth. Markets historically recover from downturns: Those with a long view may benefit from staying the course through short-term fluctuations.  

Staying prepared through economic cycles

Economic signals don’t predict the future, but they often provide context. Shifts in the yield curve, sentiment data, and policy direction each offer clues about where the economy may be heading. The goal is not to time the market. Rather, it’s to build resilience when it shifts. Being able to interpret the signals, rather than merely react to outcomes, may provide a chance to position an investor ahead of the curve.