Jan 07, 2014 Philip Burgess
With the holiday season in full swing, many consumers are hitting stores to spend money, but increased expenditures may not end at Christmas. Conditions are setting up favorably for continued spending, so consumers need to be prepared for future financial troubles.
One of the biggest reasons expenditures may rise in 2014 is the fact that home value appreciation was strong this past year, which helped boost household wealth. Nationwide, values are expected to gain nearly $1.9 trillion - the second straight annual increase and the largest since 2005, according to an analysis of Zillow Real Estate Market Reports. In the past two years, appreciation has been so strong that around 44 percent of the value that was lost during the recession has been regained.
"In 2013, the housing market continued to build on the positive momentum that began in 2012, after the housing market bottomed," said Zillow Chief Economist Stan Humphries. "Low mortgage rates and an improving economy helped bring buyers into the market, boosting demand and driving prices up. We expect these gains to continue into next year, though at a slower pace."
Consumer confidence on the rise
Another factor that could help lead to higher spending levels in 2014 is the fact that consumers are feeling more confident. The Bloomberg Consumer Comfort Index jumped to minus-30.9 in the period ending Dec. 8, from minus-31.3 in the previous seven-day period - the best reading since early October. Americans were more optimistic about the economy, finances and buying climate.
"A slower pace of firings and rising equity prices has bolstered confidence," said Joseph Brusuelas, a senior economist for Bloomberg LP. Still, "the pace of hiring and real wage growth will have to advance on a sustained basis before confidence improves to the point that the middle-class consumer is ready to support a more robust recovery."
Jobs market strengthening
Following the financial crisis, many people were being laid off, which might have led to curbed spending. But now that the jobs market is on the rebound, the exact opposite could happen and consumers may increase expenditures.
Private sector employment jumped by 215,000 positions from October to November, according to the ADP National Employment Report. Small businesses added the most jobs with 102,000, followed by large and medium businesses. All five industries - construction, manufacturing, trade/transportation/utilities, financial activities and professional/business services - posted positive growth in November.
"The job market remained surprisingly resilient to the government shutdown and brinkmanship over the treasury debt limit," said Mark Zandi, chief economist at Moody's Analytics. "Employers across all industries and company sizes looked through the political battle in Washington. If anything, job growth appears to be picking up."
Short term lending could prove beneficial to consumers
Those that do spend more money in the new year need to be prepared for future financial troubles. For example, if a person's car breaks down following a major purchase, they could be in a situation where it is hard to cover the monthly essentials. As a result, high late fees and penalties could be charged.
However, short term lending could help avoid this type of situation. By obtaining one of these loans, people are able to secure funds quickly to cover all bills. From the traditional consumers to business owners, short term lending could prove beneficial to many. But, these loans are some times avoided because of negative press. Critics claim that the high fees and interest rates make short term loans unfair, but the cost of obtaining one is often less than what is charged if a bill payment is missed.