Foresight leads to preparedness, and being prepared really pays off when it comes to personal finance. Earlier this year, editors at WalletHub, a national survey website, surveyed more than a dozen economics experts, analyzed big-bank projections and Federal Reserve forecasts, and produced a list of financial predictions for 2018.
Here’s what they predict could take place in 2018:
8 Predictions for 2018
U.S. Gross Domestic Product (GDP) Growth Will Remain Near 2.5%
The U.S. economy gained steam throughout 2017, with GDP growth rising from 1.6% in 2016 to a projected 2.5% this year, according to the Federal Reserve. And economic expansion is expected to continue through 2018. But how high we fly largely depends on the fate of Congressional tax reform efforts.“The U.S. economy has greater momentum than it has had in several years,” Richard E. Sylla, professor emeritus of economics at New York University, told WalletHub. “Tax cuts will add fiscal stimulus to a near-full-employment economy.”The median Fed projection calls for another round of 2.5% year-over-year growth. That’s well below the 6% President Trump predicted could result from tax reform but above the expectations of many economists. We’ll stick with Fed Chair Janet Yellen and company on this one. They have the most data, not to mention the ability to pull levers that can affect the outcome, from raising rates to unwinding our multi-trillion-dollar bond portfolio.
Unemployment Will Crack 4%
At 4.1 percent as of November 2017, the national unemployment rate is at its lowest point in 17 years. But the Federal Reserve projects a 3.9 percent rate in 2018. That also seems to be the general consensus among investment banks and the economists WalletHub surveyed.
“The unemployment rate will be below 4 percent at the end of 2018, perhaps as low as 3.5 percent,” said Robert J. Gordon, the Stanley G. Harris Professor of Social Sciences at Northwestern University. “This would mean the lowest unemployment rate since 1968-69.”Bottom line, if you don’t have a full-time job, 2018 might be your lucky year because businesses will be hiring.
The Standard and Poors (S&P) 500 Will Top 2,900 and Finish at 2,838
We’re in the midst of a record bull market, with stocks posting gains for eight straight years (including 2017) and major indices breaking record after record. At 2,676 as of December 15, the S&P 500 is up 19.5% year to date and at an all-time high. So barring some big unforeseen downside surprise, the S&P will end 2017 with its biggest gain since 2013 – more than doubling the historical annual average.But how much does this old bull has left in the tank? Currently, all signs are pointing to another strong year for stocks in 2018. Corporate earnings are strong. Bond prices are low. Tax reform has the potential to significantly boost bottom lines. Interest rates remain low by historical standards. And regulations that have proven costly to the corporate world are being rolled back.WalletHub also analyzed 2018 S&P 500 projections from eight major investment banks, and their end-of-year targets – which range from 2,675 (Citibank) to 3,000 (JPMorgan Chase) – average 2,838. So we expect the S&P 500 to top its current record in 2018 and finish the year with a gain of around 6%.
The Federal Reserve Will Raise Rates Three Times, Costing Borrowers Billions
The Federal Reserve Open Markets Committee has increased its target interest rate, the so-called federal funds rate, five times since 2006: once in 2015, once in 2016 and three times in 2017. And the Fed’s projections indicate two to three more in 2018, with three looking more likely. The experts WalletHub surveyed also seem to think we’ll have another three-hike year.“My best guess is for three rate hikes to take the target band to 2-2.25 percent,” said Paul J. Shea, assistant professor of economics at Bates College. “This matches the FOMC’s current forecast, they are the ones making the decision.”So we have to plan for three more rate hikes in 2018. And that means paying off as much of our record credit card debt as possible. If we don’t (the more likely scenario, unfortunately), we could be in big trouble. Each quarter-point increase in the fed’s target rate costs people with credit card debt roughly $1.4 billion in extra interest per year, according to WalletHub research. And delinquency rates are creeping up from record lows as debt levels reach record highs. A third rate hike in 2018 could be the straw that breaks the camel’s back, causing a significant rise in defaults, a corresponding decrease in credit quality and stricter lending standards.
Credit Card Debt Will Break All-Time Records, Topping $1 Trillion Owed
By the end of 2017, U.S. consumers will likely owe more credit card debt than ever before. The current end-of-year record, set in 2008, is roughly $984 billion. We’ll flirt with the $1 trillion mark, according to WalletHub’s projections. And if we don’t cross it in 2017, we’ll definitely surpass $1 trillion in credit card dent in 2018. The real question is how much more we can handle before we can no longer afford the minimum monthly payments on our balances.Unfortunately, we may find out sooner rather than later. The percentage of people who are 30 days past-due on their credit card payments has increased by 26% from the first quarter of 2016 through the third quarter of 2017, according to the most recent data available from Equifax. And the share of credit card users who are 60+ days past-due rose by 14% over the same time period. This trend could easily worsen, and quickly, as we continue to rack up more debt and the Fed continues to make it more expensive.
Consumer Credit Scores Will Peak in 2018
The average credit score rose 10 points during 2017, from 669 to 679, according to data from TransUnion. And we can expect continued growth in 2018. But it might not last much longer. Low unemployment and continued economic growth are major tailwinds for credit scores, and 2018 is looking good in both regards. Furthermore, lots of negative records from the Great Recession are still falling off consumers’ credit reports. Charge-offs and bankruptcies stay on credit reports for seven years and 10 years, respectively. And the unemployment rate didn’t start dropping from financial-crisis highs until 2011.We’re starting to see cracks in the foundation, though. In particular, 30-day delinquency rates rose for credit cards, auto loans and mortgages during 2017. An increase in delinquency has been a long time coming, considering just how much debt we’ve racked up in recent years and how low delinquency rates have been relative to historical norms. If that trend continues, it will start dragging down the national average credit score in 2019.
U.S. Auto Sales Will Top 17M for the Fourth Straight Year
People keep waiting for the post-recession car-buying boom to end, but it just keeps chugging along. The average car is still 11.6 years old, according to the Bureau of Transportation Statistics. Technological advances continue to drive interest. And record-setting natural disasters are even having an effect, forcing people to replace their totaled wheels. Indeed, David Shulman, senior economist with the UCLA Anderson Forecast, foresees a “small increase” in auto sales during 2018 due to “pent-up demand from hurricane losses.”As a result, we don’t see much of a slowdown, if any, in 2018. It should be yet another year with more than 17 million light vehicles sold.
Existing Home Sales Will Again Top 5M, Despite Higher Rates
Unlike credit cards, most mortgages aren’t directly affected by Fed rate hikes. Nearly 90% of mortgages have fixed rates and a 30-year term. And despite the Fed increasing its target rate by 125 basis points, the average APR on a 30-year fixed rate mortgage has actually fallen a bit since December 2015, according to data from Freddie Mac. But when people hear rates are rising, they think the window to borrow on the cheap is closing. And that can lead to more home sales.
Through October, existing home sales are 9% behind 2016’s pace, according to the most recent data from the Federal Reserve Bank of St. Louis. We ended 2016 with roughly 5.45 million homes sold, according to the National Association of Realtors, thanks to a strong November and December. And we expect similar results this year, continuing into 2018.“Home sales can be expected to continue to rise in many markets that have yet to recover from the crash a decade back,” said Oscar Brookins, an associate professor of economics at Northeastern University. “Those markets that have already recovered (primarily the coastal markets) will probably continue growth and attenuate the existent gap between themselves.”