WASHINGTON—Next year auto sales will top 17 million units, oil will fall to $50 a barrel and consumers will rack up at least $60 billion in credit card debt, according to WalletHub.
The personal finance social network announced its 11 Economic Predictions for 2015, based on the company’s research, as well as interviews with a panel of experts in the fields of economics, finance and public policy.
Last year WalletHub’s predictions scored 3.86 on a four-point scale. Here is what the firm is projecting for the year ahead.
1. 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 expect the U.S. economy to continue slowly trending upward, 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,” said 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.”
2. Unemployment Will Decline To 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%. WalletHub expects 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, observed WalletHub – with most organizations, including the Federal Reserve, foreseeing a dip down to the 5.4% - 5.6% range – but some compelling reasons exist to believe these estimates are overly conservative.
For example, WalletHub pointed to a Harvard Business Review analysis that 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.
3. Wages Will Increase 3%
While the unemployment rate has been dropping steadily in recent months, and should continue to do so in 2015, WalletHub expects 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 company stated.
4. The S&P 500 Will Hit 2,250
How high can the stock market go, and how long can this bull market last? By all accounts, it seems that the country is in for another strong year and more record highs for equities, WalletHub explained. Individual investors are 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.
“We therefore see the potential for roughly 13% upside in the S&P 500 next year, compared to current levels,” WalletHub reported.
5. 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,” WalletHub said. “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.”
6. Home Sales Will Post A Modest Increase
Real estate has lagged behind the rest of the economy as the U.S. recovers from the Great Recession. But with the economy clearly stabilizing, interest rates remaining low, lending guidelines being relaxed and Millennials coming of home buying age, it’s fair to expect sales to rebound in 2015. WalletHub said many real estate research groups agree with the assessment—with Realtor.com, for example, predicting that existing home sales will increase 8% in the New Year.
7. Oil Will Fall To $50 A Barrel
While the price of WTI crude oil began 2014 in the mid $90s, it has since tumbled all the way down to the mid $50s. WalletHub expects 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,” said 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 $50s.”
8. Interest Rates Will Remain Near Record Lows
WalletHub observed that the end of quantitative easing was long viewed as a potentially calamitous event, as the economy was considered potentially too weak to support itself and many Americans 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, the company observed. The economy has performed fine without the Fed’s bond buying and interest rates have actually remained near historical lows in its aftermath, noted WalletHub. The U.S. 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, the company predicted.
“Rates will rise, just not as much as some people think,” stated WalletHub. “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.”
9. 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, WalletHub explained. 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 CardHub, 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,” stated WalletHub. “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.”
10. 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, observed WalletHub.
“I think we will still see entrepreneurial activity continue, albeit at a slower rate,” said 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.”
11. 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 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-base equivalent, 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.”