Posted by: John S Kiernan

Foresight leads to preparedness, and being prepared really pays off when it comes to personal finance. So to get you ready for the months to come, WalletHub’s editors surveyed more than a dozen economics experts, analyzed big-bank projections and Federal Reserve forecasts, and produced a list of financial predictions for 2018.

Below, you can check out WalletHub’s projections for everything from GDP growth and stock market gains to credit card debt and credit scores. And that’s followed by additional commentary from our expert panel. By the way, it’s worth noting this isn’t our first rodeo. Over the past six years, WalletHub’s annual economic predictions have largely come true, earning an average GPA of 3.56. You can learn more about that below, too.

1. 8 Predictions for 2018
2. Ask the Experts: 2018 Economic Predictions
3. Grading Previous Predictions

8 Predictions for 2018

1. U.S. 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.

2. Unemployment Will Crack 4%

   At 4.1% as of November 2017, the national unemployment rate is at its lowest point in 17 years. But the Federal Reserve projects a 3.9% 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.

3. The S&P 500 Will Top 2,900 & 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%.

4. The Fed 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.

5. 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.

6. 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.

7. 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.

8. 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.”

 

Ask the Experts: 2018 Economic Predictions

WalletHub’s editors aren’t the only ones with predictions about money matters in 2018. We asked a panel of economics professors to share their thoughts on what your wallet’s future holds. Just click on an expert’s picture below to see what he or she had to say in response to the following questions.

General Economic Questions:

• How will the U.S. economy perform in 2018? Do you have a prediction for GDP growth?
• Will the unemployment rate finish 2018 below 4%?
• Will President Trump have a positive or negative impact on the economy?
• To what extent will the financial health of the average American change in 2018?
• What do you expect from the stock market in 2018? At what level will the S&P 500 finish the year?
• Will the price of oil rise in 2018, and how will this affect U.S. consumers?

Credit Market Questions:

• How many times do you think the Federal Reserve Open Markets Committee will raise its target rate in 2018, and at what level will the target rate end the year?
• Do you believe credit will become more or less available in 2018, and why?
• Do you expect consumer debt levels to rise, fall or stay the same in 2018?
• What are your expectations for home sales and mortgage availability in 2018?
• Will annual auto sales grow or regress in 2018?

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• Gabriel Mathy Assistant Professor of Economics at American University
• William Yu Economist at UCLA Anderson Forecast
• Marie Christine Duggan Professor of Economics at Keene State College
• Richard E. Sylla – Professor Emeritus of Economics in the Leonard N. Stern School of Business at New York University
• Philip Rothman Professor and Graduate Program Director in the Department of Economics at East Carolina University
• Lee McPheters Professor of Economics and Director of the JPMorgan Chase Economic Outlook Center in the W. P. Carey School of Business at Arizona State University

Gabriel Mathy Assistant Professor of Economics at American University

How will the U.S. economy perform in 2018? Do you have a prediction for GDP growth?

The U.S. economy should see the same economic growth in 2018 as in 2017, perhaps slightly slower. Barring an unexpected shock, you can expect about 2 percent real GDP growth, and 4 percent nominal GDP growth.

To what extent will the financial health of the average American change in 2018?

Wage growth is still weak relative to the strength of the overall economy, but the stock market will continue to do well and housing prices should rise a bit, so the financial health of the average American will rise slightly if they can avoid taking on more debt.

What do you expect from the stock market in 2018? At what level will the S&P 500 finish the year?

The stock market will continue to perform strongly, as corporate profits are high, bond yields are low, and corporate tax cuts are likely. My forecast is for the S&P 500 to finish the year at about 3000.

Will the price of oil rise in 2018, and how will this affect U.S. consumers?

Barring a major shock, the price of oil will remain around $50-$60 per barrel for the next year. That price range is roughly the breakeven price for marginal U.S. producers, who are now the swing producers that determine the price of oil globally. Given the low volatility of the oil price and its low levels historically (in real terms), oil is basically dead as a major determinant of consumer behavior.

William Yu Economist at UCLA Anderson Forecast

How will the U.S. economy perform in 2018? Do you have a prediction for GDP growth?

We suggest that the U.S. economy will be running well for three main reasons:

• Pro-business and pro-growth policies with deregulation and reduction of corporate tax rates could boost investment and GDP growth.
• Global economies are performing well, and therefore they will induce more U.S. exports growth.
• Wealth effect will induce more consumer spending given the high values of stock markets and housing markets. We predicted that the U.S. real GDP growth in 2018 would be around 3 percent.

To what extent will the financial health of the average American change in 2018?

The total U.S. household debt-to-GDP ratio is around 80 percent now, which is much lower than 99 percent in 2008 Q1, the eve of the financial crisis. That said, as a whole, the financial health of the average American is in a much better shape now. And the main reason is we have a much stringent rule on mortgages, to avoid repeating another subprime mortgage crisis. In the mortgage markets, things will not change much in 2018.

However, student loans have been increasing to almost $1.5 trillion now, up from $600 billion in 2018 Q1. For some students, especially those in for-profit colleges, their financial health might not be good if they cannot get a good-paying job to pay back their student loans.

What do you expect from the stock market in 2018? At what level will the S&P 500 finish the year?

Stock markets are extremely difficult to predict. S&P500 return in 2018 could go from 10 percent, 5 percent, 0 percent or -5 percent. First, stock market prices have been growing 20 percent over the past 12 months. So we might see some adjustments. Second, price-earnings ratio is at a high level. But the interest rates are still at a very low level. Third, the interest rate raising from the Fed is still at the early stage. Fourth, we predicted a good economy in 2018. Usually, stock markets will not crash in a good economy. In sum, S&P 500 might be more likely to be higher than lower in December 2018, compared to December 2017.

Will the price of oil rise in 2018, and how will this affect U.S. consumers?

Oil prices are another very difficult variable to predict. But given the U.S. frackers ready to jump in for production amid higher oil prices, I think there might be a ceiling for oil price, which I think is around $60 to $70 a barrel (WTI). It is most likely around $40 to $60 over the past three years, based on the fundamental factors of demand and supply.

Marie Christine Duggan Professor of Economics at Keene State College

How will the U.S. economy perform in 2018? Do you have a prediction for GDP growth?

GDP growth will be decent, but the average American will be under pressure to take on more debt as government spending is cut at national, state and local levels. A greater divergence in interests of different sectors will emerge.

By raising interest rates, Janet Yellen was successfully deflating a bubble in the stock market, as the price-earnings (P/E) ratio stopped rising rapidly. If Jerome Powell reverses course and lowers interest rates, the stock market will crash, possibly before the end of 2018.

Richard E. Sylla – Professor Emeritus of Economics in the Leonard N. Stern School of Business at New York University

How will the U.S. economy perform in 2018? Do you have a prediction for GDP growth?

At the end of 2017, the U.S. economy has greater momentum than it has had in several years. It should grow in the range of 2.5 to 3 percent in 2018, and toward the upper end of that range if the tax-cut bill now under consideration in Congress is enacted. Tax cuts will add fiscal stimulus to a near-full-employment economy. But there are signs that inflation is picking up, and that could be a problem in 2018. The Fed will respond to inflation above its 2 percent target with more rate increases than are currently expected. Recessions tend to start after the Fed fights rising inflation by increasing interest rates. Interest rates are abnormally low now, so I see the Fed moving to normalize them at a faster pace in 2018. That could dim the economic outlook for 2019.

To what extent will the financial health of the average American change in 2018?

The financial health of the average American should slightly improve in 2018. Enactment of the tax cuts featured in the current House and Senate bills give most of the benefits to corporations and high-income people, with marginal benefits for most others. But an overheating economy, rising inflation, and higher interest rates in the current context of historically lofty stock market valuations threaten the equity markets in 2018. What businesses and the well-to-do gain from tax cuts could be offset by lower equity valuations.

What do you expect from the stock market in 2018? At what level will the S&P 500 finish the year?

Hence, I see problems for the stock market in 2018. The bull market that began in March 2009 has proceeded now for nearly nine years, with barely any significant setbacks. That's unusual. Declines of 10 percent (corrections) or even 20 percent (a bear market) are probable in 2018. The S&P 500 index is now pushing toward 2,700, having nearly quadrupled from the 2009 lows in the wake of the financial crisis of 2007-2009. I foresee significantly lower valuations developing in 2018, and would not be at all surprised if at year end 2018, the S&P would be below its current late-2017 level.

Will the price of oil rise in 2018, and how will this affect U.S. consumers?

Oil prices have been low compared to earlier levels for the past three years. A stronger economy and rising inflationary pressures going into 2018 lead me to predict that oil prices will increase next year. But not a lot, I think, because even modest increases in prices will lead to greater supplies. The U.S., because of fracking, is now a leading producer of crude oil, and it has the capacity to increase production a lot. Somewhat higher prices at the pump in 2018 will not impact U.S. consumers much, if at all.

Philip Rothman Professor and Graduate Program Director in the Department of Economics at East Carolina University

How will the U.S. economy perform in 2018? Do you have a prediction for GDP growth?

My point forecast for real GDP growth in 2018 is 2.3 percent. My density forecast for real GDP growth in 2018 is that:

• There’s roughly a 20 percent chance of real GDP growth in 2018 will be greater than or equal to 3 percent, and less than 4 percent;
• There’s approximately a 40 percent chance that real GDP growth in 2018 will be greater than or equal to 2 percent, and less than 3 percent;
• There’s a bit less than a 30 percent chance that real GDP growth in 2018 will be greater than equal to 1 percent, and less than 2 percent.

Will the price of oil rise in 2018, and how will this affect U.S. consumers?

All else equal, I think the dynamic game between U.S. frackers and Saudi Arabia will keep oil prices pretty steady in 2018. But if political instability in the Mideast ramps up in the form of a hot war between Saudi Arabia and Iran, I’d expect oil prices to increase.

Lee McPheters Professor of Economics and Director of the JPMorgan Chase Economic Outlook Center in the W. P. Carey School of Business at Arizona State University

How will the U.S. economy perform in 2018? Do you have a prediction for GDP growth?

Our overall forecast for the nation is steady, sustainable, but unspectacular growth. We expect real GDP growth better than 2.5 percent but under 3 percent. The economy has not posted 3 percent GDP growth in more than a decade, and we do not see anything on the horizon of sufficient impact to change that (including the tax cut, or infrastructure spending as currently envisioned in the Trump budget).

We follow job growth in state economies month to month. Our forecast is the fastest growing labor markets will be found in Nevada, Utah, Texas, Oregon and Florida, with Georgia possibly displacing one of these top five job growth states in 2018.

To what extent will the financial health of the average American change in 2018?

We expect to see only modest gains in wages, even as unemployment rates move into the full employment range. Home prices, the single most important asset of most consumers, will increase, and we are projecting increases at the national level of about 5 percent.

What do you expect from the stock market in 2018? At what level will the S&P 500 finish the year?

We don’t have a stock market model, but based on the overall recession-free pace of national growth, we expect the S&P 500 to break through the 3000 mark sometime in 2018, probably around mid-year, and still above 3000 at year end.

 

Grading Previous Predictions

Anyone can make a wild guess, and even a broken clock is right twice a day. But a prediction backed by a track record of on-point projections carries a bit more weight. Plus, predictions are a lot more fun when you check to see how they pan out.

So we always end the year by grading the predictions that we made before it started. You can check out our report card below. As you can see, 2017 was a down year, largely because the stock market performed well beyond our expectations. But most everyone missed that one, and it just goes to show why you should always stay invested and avoid trying to time the market.

 Note: The GPAs for 2012 and 2013 reflect grades for WalletHub’s credit predictions alone, as overall financial predictions were not made for those years. The GPAs for 2014 onward reflect averages for WalletHub's credit and financial predictions.

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