What We Do Know in a Time of Economic Uncertainty

The US Economic Uncertainty Index reached its third-highest value on record in March 2025 (with data history back to the 1980s). With all the uncertainty, sometimes we field questions from audience members or clients about how we can forecast in such an environment. While it is true we do not know the precise future trajectory of US trade policy, we still utilize our same data-focused forecasting approach that has proven accurate during other times – such as 9/11 and COVID-19 – when we have had atypical events occur.

While uncertainty is the economic topic du jour, it is not the only relevant economic topic. Here are some others that we have robust data on which inform our macroeconomic outlooks for mild economic growth, elevated inflation, and some volume weakness.

1. The state of the US consumer is solid overall, but with pockets of weakness – it really depends on where you look. How do we know this? Let’s look at the data.

• The percentage of people making the minimum payment on their credit card – at 11.1% in the fourth quarter of 2024 – compares to the pre-COVID figure of 10.4%.
  • Takeaway: Clearly some people are struggling to keep up with their bills as the cost of essentials rises.
    
    
• The percentage of people making a full payment on their credit card – 35.3% in the fourth quarter of 2024 – compares to the pre-COVID figure of 31.7%.
  • Takeaway: A significant percentage of consumers are in very good financial shape.

• Median Annual Earnings were $62,259 in the first quarter of 2025, a 4.8% increase from one year prior.
  • Takeaway: The increase in Median Annual Earnings is outstripping inflation, which is a positive sign for the economy avoiding recession this business cycle.

• US Real Personal Income (excluding current transfer receipts) in the first quarter of 2025 was up a mild 1.1% from the same quarter one year ago. This is only half the 20-year average of 2.1% growth.
  • Takeaway: While Earnings and Income are rising, even adjusted for inflation, the rise is quite mild, which will limit the upside potential for the economy moving forward.

2. Expect inflation to make up a big portion of gains in dollar-based series, such as US Total Retail Sales. That means volumes will be relatively weaker. Again, let’s consider how we know this:

• The Money Supply (deflated) is in an accelerating growth trend on a quarterly basis.
  • Takeaway: More dollars chasing the same amount of goods and services is indicative of greater inflationary pressures ahead.

• Even with all the economic headwinds, the seasonally adjusted unemployment rate is a low 4.2%.
  • Takeaway: As baby boomers retire, we have a lack of workers to replace them. This – as alluded to above – is driving wages higher and, in turn, will drive prices higher.

• Even with some softening in the housing market thanks to high interest rates, the US Homeowner Vacancy Rate is only 1.1%, 0.3 percentage points below the pre-COVID number and 0.7 percentage points below the 20-year average.
  • Takeaway: We don’t have enough homes, and that will put upward pressure on housing prices in at least the medium term.

3. Corporate profits and cash are weakened, but elevated. This means capex will still occur but may face delays (given uncertainty and elevated interest rates), and the likelihood of individual companies engaging in capex will vary greatly depending on their circumstances.

• Adjusted for inflation, US Domestic Nonfinancial Industries Corporate Profits (with capital consumption adjustments) in the fourth quarter were 0.4% below the year-ago level, but 53% above the pre-COVID number.
  • Takeaway: There is money to spend, but firms may be a bit gun-shy right now given the number of economic headwinds and the amount of economic uncertainty.

• Adjusted for inflation, US Domestic Corporate Cash Holdings were 0.4% above the year-ago level and 50% above the pre-COVID level.
  • Takeaway: Like the profits trend, the cash trend is indicative of a Corporate America with sufficient liquidity.

• Yields on AAA-rated corporate debt averaged 5.38% in April, down 3 basis points from one year ago but up a whopping 206 basis points from the 2019 average.
  • Takeaway: Firms with large cash reserves and high credit ratings will be doing more capex than those with minimal cash reserves or lower credit ratings in this cycle. Knowing where your potential corporate customers are at in terms of cash and profits in this cycle is more crucial than ever. We can help if you aren’t sure.

Note that nowhere in points 1, 2, or 3 does the word “tariff” appear. There are still a multitude of economic datapoints that can help us forecast, and business leaders plan for the future irrespective of trade policy uncertainty.

We recommend focusing on knowing the state of your customer base first and foremost, as the outcomes in this business cycle are particularly varied in this cycle. If you aren’t sure how your customers are doing, we can help provide data as well as forecast how the state of your customers is likely to impact your company’s sales.