2013 was a year characterized by economic distractions, with things like the government shutdown, concerns about a potential U.S. default, and overall political obstinacy taking center stage. So, it’s fair to wonder: Will 2014 be any different?
While it’s impossible to know for sure, we can certainly offer some educated predictions for what the New Year has in store for consumers’ wallets. From GDP growth and unemployment to the stock market and gas prices, you can get a sneak peak of the most important issues facing your money in 2014 by checking out our predictions below.
- GDP Will Rise to 3%, While Unemployment Drops Below 7%
WalletHub interviewed a number of leading economists in preparing its 2014 predictions, and the general consensus is that the economy will continue its slow growth in 2014, turning the year into the transitionary period that ’13 should have been and bringing the economy back on track heading into 2015. You can check out our experts’ comments in full below.
- Stock Market Will Be Solid, Though Volatile
The cautious optimism with which we’ve viewed the economic recovery of late has been clearly reflected in the stock market, which soared to record-highs in 2013 yet was marked by tremendous volatility. What’s in store for 2014? Some experts predict continued growth, while others feel that a significant correction is in order.
“These markets are primed for a big correction,” says Thomas Smith, assistant professor of finance at Emory University. “A lot of this is speculative demand pushing equity values up, and this could keep up for another year. But I am pretty confident that we are going to see drop in the averages. And, if this happens, we could see a drop in other sectors and the start of a little recession.”
Those competing viewpoints will likely manifest destiny to a certain extent, but the best bet is that the stock market will continue to rise along with the economy in 2014. Not only will companies be healthier in the New Year, but with disposable income on the rise and low interest rates fostering a dearth of attractive bond options, we should see more individual investors re-enter the market as well.
- Interest Rates for Mortgages, Car Loans & Credit Cards Will Stay Low
Interest rates will remain low for the foreseeable future due to the combination of record-low credit losses (with the exception of a single quarter in 2006, charge-offs are at the lowest level since 1995) and the Federal Reserve’s commitment to retain current policies until more demonstrable economic improvement takes place.
“Because current inflation and expected future inflation are at low levels and unemployment, while gradually falling, remains high, I expect the Federal Reserve to continue the course of depressing interest to promote growth, employment and the recovery of the housing market,” says Michael L. Bognanno, chair of the Department of Economics at Temple University. “Current mortgage rates remain very attractive by historical standards, though they have climbed just over half a percent from the levels in 2012. The levels in 2012 were the lowest rates in U.S. history.”
While the Fed’s clear directives will keep market volatility in check to a certain extent, some experts believe that deflation could become a problem. “Deflation is possible, but not likely,” says James G. Devine, professor of economics at Loyola Marymount University.
- Congress Will Be On Better Behavior, But Won’t Learn Lesson
With midterm elections on the horizon and approval levels disturbingly low, we can expect politicians to be extremely image-conscious in 2014. Both Democrats and Republicans understand how politically devastating another government shutdown or fiscal cliff scare would be, as evidenced by the Paul Ryan – Patty Murray budget talks, so it’s unlikely that we’ll see any politically-motivated economic impediments of that magnitude this year.
“We will be surprised to see better political cooperation in Washington in 2014, because neither side will want to repeat the unpopular and ineffective battles of 2013,” says Steve A. Yetiv, professor of international relations at Old Dominion University. “Congress is stupid, but they tend to be especially stupid in odd-numbered years,” adds Elliott Eisenberg, CEO of Graphsandlaughs.net and a former senior economist at the National Association of Home Builders.
Nevertheless, the underlying ideological differences that fostered such crises in the past still remain, and there are plenty of extremists on both sides of the isle whose seats are safe heading into 2014. It would therefore be naïve to expect smooth political sailing in the New Year, and Congress certainly won’t do everything it can to spur true economic growth.
“Politics is currently a huge weight on the economy,” says M. Douglas Berg, assistant dean of the Department of Economics and International Business at Sam Houston State University. “Uncertainty over the Affordable Care Act, calls for increases in the minimum wage, and increased regulation are all disincentives to hiring and investing.”
- Obamacare Will Remain Front & Center
Don’t be fooled into thinking the Obamacare fight is over just because website issues and the government shutdown were not enough to derail health care reform. The law is due to be implemented in earnest in 2014, and there will be plenty of opportunities for partisan gamesmanship in the New Year.
“The policy environment is highly uncertain and largely negative for many businesses and industries,” says John Garen, professor of economics at the University of Kentucky. “Health care reform, energy regulation, and financial market regulation are negative value propositions, making productivity lower and limiting investment. This is unlikely to change for 2014.”
- Gas Will Be Cheaper
The U.S. Energy Information Administration projects that retail gasoline will average $3.37 per gallon in 2014, down from roughly $3.50 in 2013 and $3.63 in 2012. Much of this positive trend can be attributed to the domestic energy revolution witnessed in recent years, and provided there are no major surprises from the Middle East in the coming months, we should expect to see low prices at the pump throughout 2014. This should help household balance sheets gain a bit of breathing room and will hopefully make people less reliant on debt to pay for everyday expenses.
“The shale natural gas revolution is real and a game-changer for the country’s energy cost. It has been felt at both the firm and household levels," says Shawkat Hammoudeh, professor of economics and international business at Drexel University and associate editor of Energy Economics. "Deregulations and low retail natural gas prices have also lowered the power/gas bill that the U.S. household pays in the last few months. There are also increases in the average American household income coming from production from newly discovered shale oil and natural gas reserves. There is an estimate that this increase in new production added $1,200 to the average household income last year. These price and production effects should offset a large part of the sequestration and higher payroll tax impact on the U.S. economy.,” “Deregulations and low retail natural gas prices have also lowered the power/gas bill that the U.S. household pays in the last few months. This should offset a large part of the sequestration and higher payroll tax impact on the U.S. economy."
Interestingly enough, renewed focus on domestic energy resources has also prompted gains in other industries of late. “The housing markets in some of the more remote areas of the country are currently experiencing a boom in extracted resources,” says Andrew Carswell, associate professor of housing and consumer economics at the University of Georgia. “The Bakken reserve in North Dakota comes to mind. House prices are rising there, and the supply cannot keep up with demand, from the last that I heard. As someone that believes in long-term neighborhood stability, this is something to keep an eye on in 2014, especially since we are slowly moving to a self-dependent state of oil consumption.”
Meet Our Experts
- Overall Economic Outlook
- Job Market
- Federal Reserve Policy
- Small Business & Entrepreneurship
- Interest Rates & Real Estate
- Economy & Everyday Life
- Retirement Planning
- Stock Market
- Europe & Emerging Markets
- Health Economics
- Political Economy
- Outlook for 2015