WalletHub’s 2014 Economic Predictions

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.

1. GDP Will Rise to 3%, While Unemployment Drops Below 7%

Explanation: 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.

Grade: A

Grading Rationale: The only critique one can levy against this prediction is that we were perhaps too conservative. While GDP actually declined during the first quarter of the year, dropping at an annual rate of 2.9%, it has posted major advances as the year has progressed – increasing at an annual rate of 3.9% and 4.6% in the second and third quarters, respectively.

In terms of our other prediction, the unemployment rate actually began the year under 7%, at 6.6%, as figures for December 2013 were not available to us in making last year’s picks. The unemployment has stayed under this threshold all year, ultimately dropping to 5.8% in October and November.

2. Stock Market Will Be Solid, Though Volatile

Explanation: 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.

Grade: A

Grading Rationale: The S&P 500 has advanced 8.33% through the third quarter of the year, putting us on pace for a very healthy year of gains and the continuance of what is soon to be a six-year bull market. But while the stock market has posted a number of record highs in 2014, the year has also been marked by a number of scary motifs for investors – from the conflict in Russia and Ebola to plummeting oil prices and the end of Federal Reserve bond buying – that have generated a great deal of volatility and produced a number of wild market swings. In other words, our prediction was spot on.

3. Interest Rates for Mortgages, Car Loans & Credit Cards Will Stay Low

Explanation: 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.

Grade: A

Grading Rationale: Short-term interest rates continued to hover near zero during 2014, despite the Federal Reserve curtailing its extended bond-buying period in late October. Consumer interest rates therefore held steady. The average credit card interest rate, for example, had declined 0.86% as of the end of the third quarter. The continuance of low interest rates led to a strong year of consumption, with the year’s credit card debt increase expected to top $60 billion and the auto industry displaying impressive growth.

4. Congress Will Be On Better Behavior, But Won’t Learn Lesson

Explanation: 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.”

Grade: A

Grading Rationale: While the government didn’t shut down in 2014, it didn’t get much done either – with the 113th Congress producing the fewest laws to be signed into action of any Congress in the last 60 years. In other words, Congress was indeed behaving better this year but it clearly did not learn its lesson, at least in terms of the public’s desire for some sort of productive action. The newfound Republican majority in the House should produce some interesting dynamics for 2015, however, as President Obama attempts to cement his legacy despite their opposition in the last two years of his term.

5. Obamacare Will Remain Front & Center

Explanation: 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.”

Grade: B

Grading Rationale: Obamacare was an undercurrent throughout the year, helping to frame the debate in the midterm elections, serving as a target for retribution after President Obama announced his new immigration plan and providing fodder for enrollment statistics. However, there was no big blow-up regarding the Affordable Care Act during 2014 and, in truth, it was not at the forefront of public consciousness for the whole year. So, given than Obamacare was a big deal in 2014 – just not quite as big as we thought at this time last year – we had to give our prediction a B grade.

6. Gas Will Be Cheaper

Explanation: 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.”

Grade: A+

Grading Rationale: Boy, were we on point with this one. With global oil prices plummeting, prices at the pump have declined drastically as well, serving almost as a mini tax break for drivers. As of Dec. 15, the national average price for a gallon of regular gas is $2.55, compared to $3.23 last year. Given the extent to which gas prices have fallen, we had no choice but to give ourselves an A+ for this prediction.

Overall Grades: Altogether, WalletHub’s Economic Predictions for 2014 received one A+, four A’s and one B. That’s certainly not too shabby. Let’s just hope that we can keep the crystal ball clear as we prepare to make our Predictions for Your Wallet in 2015.

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