How will 2015 treat our wallets? That is the question everyone is asking as 2014 nears its close and we prepare to ring in the holidays with loved ones and then enter the season of resolutions and new beginnings. Underpinning this inquiry is a feeling of cautious optimism, as the U.S. economy appears to be hitting its stride – producing strong GDP growth and impressive hiring numbers – despite turmoil in the global oil markets, concern over stock market valuations, and worries about global conflict and recession.
While it is impossible to see through the haze of news reports, industry research and geopolitics and foretell exactly what will become of our money in the New Year, we can make some pretty darn accurate predictions about what is waiting for us. After all, we graded last year’s predictions and ended up earning a GPA of 3.86! WalletHub’s Economic Predictions for 2015 are also once again based on WalletHub research as well as interviews with a panel of esteemed experts in the fields of economics, finance and public policy. We hope they will ultimately enable you to construct and execute on a financial game plan for 2015 and lead a year of great Wallet Wellness.
11 Predictions for 2015
GDP Growth Will Be Roughly 3%
2015 is expected to be another solid year for the U.S. economy, despite the various problems being endured by many foreign markets. In fact, all of the experts we consulted expect the U.S. economy to continue slowly trending upward, as we gain momentum at the end of 2014, and for GDP growth to be around 3% in the New Year.
“I expect the U.S. economy to continue an upward recovery trajectory – slow and steady growth with maybe a hiccup or two just to keep everyone honest,” says Richard Feinberg, professor of Consumer Science at Purdue University. “GDP growth will probably be between 2-4% unless there is some unanticipated geopolitical and/or geo-economic catastrophe.”
That is certainly a lot better than the 1.9% growth witnessed in 2013 and the 2.4% growth expected for 2014, according to the World Bank.
Unemployment Will Reach 5%
The unemployment rate began 2014 at 6.6% and was down to 5.8% as of November. The year before, it began at 7.9% and ultimately fell to 6.7%. We expect a similarly impressive decrease in 2015, down to at least 5%, as the economy really gets rolling and unemployment figures continue to trend back toward pre-recession levels. This might seem like a rather drastic call – with most organizations, including the Federal Reserve, foreseeing a dip down to the 5.4% - 5.6% range – but there are some compelling reasons to believe these estimates are overly conservative.
For example, as the Harvard Business Review notes, the current economic recovery has not been led by small business job growth, as has been the case in the past, and unemployment will not fall in earnest until that occurs. What’s more, credit card default rates are at the lowest level since 1985, supporting the notion that a rapidly improving economy is helping more and more consumers stay current on their bills.
Wages Will Increase 3%
While the unemployment rate has been dropping steadily in recent months, and should continue to do so in 2015, we expect wage growth to largely hold steady in the New Year – ultimately reaching 3%, compared to the 2.9% average of the past two years. A lack of wage growth is one reason many people have questioned the strength of the economic recovery, or at least its equality, and it will continue to serve as an easily identifiable example of this country’s income divide moving forward.
The S&P 500 Will Hit 2,250
How high can the stock market go, and how long can this bull market last? These are two very important questions that nervous investors have been asking themselves lately as they try to discern the tea leaves of global turmoil, domestic improvement and historically pricey valuations. Well, by all accounts, it seems that we are in for another strong year and more record highs for equities. Individual investors seem to be entering the market with more force, corporate balance sheets appear strong, interest rates are still low and politicians seem to be staying out of the market’s way, after all. We therefore see the potential for roughly 13% upside in the S&P 500 next year, compared to current levels.
“There are several factors suggesting a good year is ahead for the stock market as a whole,” says Terry L. Clower, professor of public policy at George Mason University. “Sputtering growth in Europe and relatively modest growth in China will keep interest rates low in those regions, which will make the U.S. stock market a good place to invest. Corporate profits will continue to perform pretty well, and if the Saudis keep pumping at current rates, lower energy costs will support higher levels of consumer spending and boost corporate profits – all good news for a stock market that is establishing new highs. I do expect some periods of pullback, maybe even a light version of a market correction, but the long term investor is likely to do well in the U.S. equity markets in 2015.”
Auto Sales Will Top 17 Million
Much has been made about the old age of U.S. automobiles – 11.4 years – as well as the favorability of the current buying climate in light of historically low interest rates. These factors, combined with our increasingly resurgent economy, has led to a great year for auto sales in the U.S. – with projections holding that we will end 2014 with 16.5 million vehicles sold. The prevailing thought seems to be that sales will only increase in 2015, ultimately topping 17 million – a level breached only twice in the past.
Those of us who are potentially planning a trip to the car lot in the New Year would be well served to remember the intricacies of the current automotive lending market. Car manufacturers offer the lowest financing rates, according to WalletHub’s 2014 Auto Financing Report, followed by credit unions, national banks and regional banks. You’ll also pay 20% less interest on a new car than a used one, which is the highest recorded spread in the past two years.
Home Sales Will Post Modest Increase
Real estate has lagged behind the rest of the economy as we recover from the Great Recession, perhaps because consumers are scared to make the same housing mistakes once again. But with the economy clearly stabilizing, interest rates remaining low, lending guidelines being relaxed and Millenials coming of home buying age, it’s fair to expect sales to rebound in 2015. Most real estate research groups seem to agree with this assessment. Realtor.com, for example, predicts that existing home sales will increase 8% in the New Year.
Oil Will Fall to $50 a Barrel
While the price of WTI crude oil began 2014 in the mid $90’s, it has since tumbled all the way down to the mid $50’s. We expect this drastic decline to bottom out at around $50 per barrel early in 2015, providing gains for many companies and consumers along the way.
“I would expect them to bottom this winter,” says Robert K. Kaufman, professor of energy management and policy at Boston University. “The depth depends on how cold the winter will be. If a cold winter, prices will bottom at about $60. But if the winter is mild, I could see a bottom in the low $50's.”
Interest Rates Will Remain Near Record Lows, Despite Shift in Fed Policy
The end of quantitative easing – the Federal Reserve’s policy of buying bonds in order to keep interest rates low – was long viewed as a potentially calamitous event, as the economy was considered potentially too weak to support itself and many folks worried that a rise in interest rates would send investors scrambling back into bonds at the expense of the stock market. These negative events have not come to fruition, however. The economy has performed just fine without the Fed’s bond buying and interest rates have actually remained near historical lows in its aftermath. We can expect that to continue in 2015, despite the fact that the median projection from Fed officials is that their benchmark rate will rise from 0.25% to 1.375% next year.
Yes, rates will rise, just not as much as some people think. It simply seems too early for any meaningful rise in interest rates given how the Fed is still chasing inflation, the wage stagnation we’re encountering, and the depressed price of oil. The current trajectory of credit card interest rates certainly seems to support that notion, as does the continued underperformance of the real estate market. Suppressed interest rates will undoubtedly be a boon for consumers mired in debt and investors who are long in equities.
U.S. Consumers Will Rack Up At Least $60 Billion in Credit Card Debt
While historically low default rates have helped stave off disaster, keeping consumers current on their bills and showcasing a rapidly recovering economy, we are once again getting into some bad habits when it comes to credit card debt. Consumer credit card debt, a useful indicator for national spending and payment habits, is expected to rise by a minimum of $60 billion in 2014, according to WalletHub, which would represent an increase of at least 55% relative to 2013.
We expect to see an increase of at least that amount – most likely into the $70 billion range – in 2015. This will increase the average household’s credit card balance beyond the $7,126 that’s currently owed and much closer to the $8,300 tipping point, at which time existing balances would prove unsustainable and defaults would rise drastically.
Entrepreneurship Rates Will Rise Slowly
While entrepreneurship rates declined in the past few years, as traditional hiring rebounded after the Great Recession and fewer people were starting their own businesses out of necessity, there is reason to believe that trend could be reversed in 2015. For starters, the simple fact that the economy is improving could lead many people who have left their business creation ideas on the sidelines in the name of stability in recent years to enter the world of entrepreneurship. Entrepreneurs are increasingly coming from the world of traditional employment, after all, with 78.2% of the new entrepreneurs in 2013 not coming from unemployment, according to the Kaufman Foundation, compared to 73.8% in 2009. What’s more, a large portion of recent college graduates are either unemployed or underemployed – 8.5% and 16.8%, respectively – which should drive many young people to start their own businesses.
“I think we will still see entrepreneurial activity continue, albeit at a slower rate,” says Steven E. Bryant, executive director of the Gayle and Bill Cook Center for Entrepreneurship at Ivy Tech Community College-Bloomington. “A lot of people displaced by the economic conditions over the past few years are now finding opportunities with existing firms, so some of the freelancers have moved into working for traditional employers as hiring has picked up. But, there will still be a healthy amount of startup activity as people look to pursue their dreams of working for themselves and making products or offering services better or more efficiently than their competitors. There is also a lot of media attention on the importance of entrepreneurs and economic development officials are seeing the ‘make your own’ jobs movement become more of a focus in their efforts to grow local/regional economies.”
Mobile Banking Will Thrive
Fueled by technological advances and shifting consumer habits, personal finance is becoming increasingly electronic and mobile. For example, the best bank accounts clearly come from online-only institutions, with online-only checking accounts being 32% cheaper than their branch-based counterparts and providing 74% higher interest rates, according to WalletHub’s 2014 Banking Landscape Report. Average rates for online-only savings accounts are also 357% higher than their branch-based equivalents, and online-only accounts have 257% lower monthly fees as well.
“I think that the most significant trend continues to be the migration to online banking and integration with smart phones and tablets,” says Tanya Marsh, associate professor at the Wake Forest University School of Law. There are some terrific tools that are very convenient for consumers and very cost effective for the banks. If a customer can simply snap a photo of a check and upload it, rather than visiting the bank branch, both the consumer and the bank are winners. The largest banks are in the best position to take advantage of this trend because these tools are expensive to implement on the front end, and they can spread those adoption costs along a larger customer base. Community banks can come up with ways to band together to implement this technology in a more cost effective way, but the economies of scale mean that it will be much more likely that all of the largest banks will offer similar services, and smaller banks will not. I think that could have a big impact on whether consumers, particularly younger consumers, choose big banks or small banks.”
Grading Previous Predictions
WalletHub first conducted this report last year, but – as you can see from our recent grading efforts– we did pretty well, earning a GPA of 3.86 for our 2014 Wallet Predictions. This is in keeping with our continued strong performance in constructing New Year’s Credit Predictions for our site, which has an average GPA of 3.62 over the past three years.
Hopefully, this will help prove to you that we know a bit about these matters and will enable you to take advantage of all of our predictions for 2015. Let’s just hope we can keep the good times rolling!
Ask The Experts: 2015 Economic Predictions
For more insight into what the near economic future holds for our wallets, we turned to a panel of esteemed experts in the fields of economics, finance and public policy. You can check out the questions that we posed to the experts, along with their bios and responses, below.
- How do you expect the U.S. economy to perform in 2015? Where do you anticipate GDP growth ending up?
- What kind of year do you think the stock market will have in 2015?
- What will be the biggest economic themes for 2015?