Using economic forecasts to predict risk 

Under any circumstance, it is difficult to predict where the economy will be in the coming weeks, months or years. With ongoing trade wars between the United States and major trade allies and fluctuating tariffs that are subject to change at a moment’s notice, it can be even harder. 

Why it matters: Credit managers are expected to keep their heads on a swivel as they anticipate potential risks to best protect their company from potential losses. During periods of economic uncertainty, credit managers may find themselves paying extra attention to economic forecasts, looking for any hints as to where the economy will be in a few months’ time.  

Many economic forecasts are predicting normalcy following the flurry of tariffs from the United States announced on “Liberation Day” on April 2, but looking past hard data and focusing on soft data could tell a different story.  

Economic forecasts focusing on factors such as gross domestic product (GDP), inflation, employment, spending and inventories were a reflection of the economy before many tariffs were effective. While this still offers a valuable perspective, looking at soft data, surveys from business owners, port activity or credit managers point to a more fraught economic outlook.  

“Economists are forecasting normalcy because in the absence of good information, they go with what they know,” said NACM Economist Amy Crews Cutts, Ph.D., CBE. “We’re in the midst of a really difficult time from a data perspective, because the hard data is all backwards, looking back to March or the first quarter. The soft data, like the information reported in the CMI, highlights shipment delays and other factors that aren’t showing up in the hard data yet.” 

Many economic projections remain optimistic about the coming months because data has yet to reflect the full weight of the United States tariffs. While it may be easiest to accept them without question, digging deeper into softer indicators of nearing economic trouble might help credit managers best prepare their companies’ defenses, as economic uncertainty transforms the credit landscape and increases risk across the board.  

When it comes to economic forecasting and predicting recessions, it can be helpful to look at the past. There have not been many recessions and those that have happened started by different reasons, making it difficult to predict a recession with any exact precision. While the economy seems to be in a unique position right now, tariffs and supply chain issues are anything but new, with President Trump levying tariffs against China in 2019 during his first term to supply chains faltering during COVID-19.  

“If you go back and look at how your company was affected by both the 2019 tariffs and then later at the COVID supply chain problems, it gives you some scenarios that you can look at for how you may be impacted by certain economic issues in 2025 and 2026,” Cutts said.  

While looking back to how ebbs and flows in the market impacted your company can be helpful, it is hard to predict exactly what the economy will look like in the near future as trade policy changes and shifts often. With ongoing negotiations with trade allies and flip-flopping policies, it can be difficult to gauge the actuality of many proposed tariffs, making it even more complicated for businesses to create a plan to address them.