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Rob Rubin (00:00):

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(00:31):

Hello, everybody, and welcome to the Banking & Payment Show of Behind the Numbers podcast from eMarketer. Today is May 13, 2025. I'm Rob Rubin, head of business development at eMarketer and your host today. Today we're going to talk about growing consumer debt and how it will play into all the economic uncertainty in front of us. Joining me today are eMarketer analysts, Grace Broadbent and Oscar Orozco. Hey, guys. How you doing?

Oscar Orozco (00:59):

Hey, Rob.

Grace Broadbent (01:00):

Hi, guys.

Oscar Orozco (01:01):

Thanks for having me on. Rob, it's been a few years [inaudible 00:01:05].

Rob Rubin (01:04):

It hasn't been a few years. I've only been doing this a few years, but it's been a while.

Oscar Orozco (01:09):

It feels like it's been a while. Happy to be back.

Grace Broadbent (01:11):

And I think it's my first time being on with you, Oscar, so this is exciting.

Oscar Orozco (01:14):

This is true. Yeah, it's going to be a good time.

Rob Rubin (01:16):

I want to have an icebreaker quiz for you guys to get us warmed up on the topic today. So I'm going to throw a number at you first. According to the New York Federal Reserve in Q4 '24, consumer debt was 18.04 trillion with mortgage debt representing about 70%, 12.6 trillion. What do you guys think that 18.04 trillion in Q4 '24, what do you think consumer debt was in Q1 2020, pre-pandemic?

Grace Broadbent (01:51):

[inaudible 00:01:51].

Rob Rubin (01:50):

Though how much has debt grown since right before the pandemic? Anyone want to take a guess? I know the numbers, so I can't [inaudible 00:01:58].

Oscar Orozco (01:59):

Go ahead, Grace you take ... You start.

Grace Broadbent (02:02):

I'm guessing 17.1.

Rob Rubin (02:04):

So you think debt went down, we had more debt since before the pandemic or just a little bit? It's at 18.1 now. So you're saying we've taken on an extra trillion?

Grace Broadbent (02:15):

So it went up. Oh, that might be too much. I might take it back. 17.5

Oscar Orozco (02:20):

I was going to be a lot lower. I was going to say 13. So it's drastically gone up.

Rob Rubin (02:25):

Well, so this is good in so many different ways, but the answer is just over 14 trillion.

Oscar Orozco (02:25):

Oh. All right.

Rob Rubin (02:32):

So the reason-

Grace Broadbent (02:34):

Oh my gosh.

Rob Rubin (02:35):

I mean it's bad, right? It's not good, but it's that, Oscar, you're a forecaster. So it's like an interview question for forecasters.

Oscar Orozco (02:47):

Exactly. I'm always within margin of error.

Rob Rubin (02:50):

So here's the next question though.

Grace Broadbent (02:52):

You're good at your job.

Rob Rubin (02:53):

What's the next biggest consumer debt category? So the categories are student loans, auto loans, and credit card debt. So we know mortgage debt was 70% of that number, 12.6 trillion. Which category is next?

Oscar Orozco (03:08):

I'm going to go with credit card.

Rob Rubin (03:12):

This is relevant later.

Grace Broadbent (03:16):

I think I actually have these [inaudible 00:03:18] in my notes.

Rob Rubin (03:19):

All right. All right. So auto loans.

Grace Broadbent (03:21):

So it's auto loans.

Rob Rubin (03:23):

It would've been so good. You're so smart.

Grace Broadbent (03:25):

I know that was a guess. I didn't know 2020.

Oscar Orozco (03:27):

Grace doesn't need to prove it.

Grace Broadbent (03:28):

I can't lie. I can't lie.

Rob Rubin (03:31):

Auto loans is 1.66 trillion, student loans is 1.62 trillion, and credit cards is just only $1.21 trillion.

Grace Broadbent (03:43):

Wow.

Oscar Orozco (03:44):

So pretty close.

Rob Rubin (03:45):

So pretty close. So that was a long icebreaker, but it was a fun one, I thought, and it was related to the topic. So I want to get right to our first segment, the headlines. In the headlines I choose a story related to this topic. For today, I chose a Wall Street Journal article from April 29th on how retail giants have managed to keep a lid on prices since the tariffs began. In short from the article, retailers like Walmart, Target, and Amazon have kept everyday prices flat despite the new import tariffs. And they've been doing it by leaning first hard on the suppliers to not raise prices, accelerating shipments before the tariff dates and stockpiling inventories and tapping that stockpiled inventory. But as the article points out, the executives are now warning that those tricks are almost all spent.

(04:44):

Higher shelf prices and even spot shortages could hit within weeks, posing a fresh inflation risk for consumers who are already carrying, as we've been not really laughing, but kind of laughing about our record household debt that we have. So Oscar, which consumer categories are we going to see increases on first?

Oscar Orozco (05:06):

Yeah, this is something we've talked about a lot on forecasting of course, and the way I thought of it was two major factors. So one is of course just thinking about what category is largely imported, right, especially from China, southeast Asia. But the other one is of course thinking of the categories in terms of what is a discretionary spend versus an essential. So really price elasticity. And the top one for me is apparel and footwear. I believe the data states that almost ... nearly 100% of all of these products are imported. So they're facing these higher tariffs, and it's a major shock for retailers, and they're essentially having to pass on right away these price increases to consumers.

Rob Rubin (05:56):

Especially in categories like back to school, which is going to be coming up soon, and that's where parents are buying cheap fashion.

Oscar Orozco (06:05):

Absolutely. Exactly, yeah, yeah. And I think some of the back to school and holiday items are already stocked up and kept separately. But nonetheless, this is I think the category that is going to feel or is already feeling the impact immediately. So that was the top one for me.

Rob Rubin (06:21):

What about a lot of grocery and household goods are probably also affected when they're going to run out of trips. So Grace, what are the likely scenarios? Is spending going to stay the same and we're just going to see more debt? Are people just going to do ... Is there more room for us to consume to take on more debt or are consumers going to cut back on non-essentials, and we're going to be in a full-fledged recession?

Grace Broadbent (06:51):

I think that there is, it's going to be probably a little bit of both. I do think consumers are going to take on more debt, but also I do think there will be a pullback in spending. We have already seen a little bit of it in payment providers Q1 earnings that just came out last week. For instance, Synchrony in their earnings that they're already seeing a pullback in discretionary spending in areas like furniture and travel.

Rob Rubin (07:16):

Did they report delinquencies on store cards?

Grace Broadbent (07:20):

I don't know off the top of my head, but they have ... the delinquencies are staying at, they've already been at elevated levels, and they have showing no signs of going down. They were starting to go down a little bit in the last couple of quarters of '24, but now they are ticking right back, are staying even. But yeah, payment providers are already starting to see the effects. It's still early on, but in all the surveys I've seen every consumer basically said, "I do plan on pulling back spending and/or switching to lower priced items, maybe private label items." And when we're talking about clothes and back to school, I think there's going to be a shift to more secondhand items.

Rob Rubin (08:03):

There's a lot of news about dolls, right? 30 dolls is too much. People should just get away with ... three dolls is enough now. So is that going to be a category like toys? Is that going to get hit hard?

Oscar Orozco (08:19):

Oh, absolutely. I mean, yes, even President Trump has been mentioning dolls and toys, and it's up there with apparel for being very, very impacted by tariffs. So I think it's another category. Also in terms of price elasticity, in terms of whether ... It's less of an essential. Right? So these are things that parents will undoubtedly pass up, push to next year. So there'll be a big impact on any sort of retailer that sells toys and the manufacturers, of course.

Rob Rubin (08:49):

and telling kids that they can only have three dolls is extreme and mean.

Oscar Orozco (08:55):

And consumer electronics, guys, too, which are ... it goes hand in hand with toys, the new smartphones and the new TVs and new gadgets.

Rob Rubin (09:03):

But haven't we seen carve-outs? Are we starting to see tariff carve-outs for certain categories of products? Didn't I read that laptops aren't part of it anymore?

Oscar Orozco (09:15):

Yeah. There seems to be certain items, which laptops are actually a little bit more of a necessity product. Right? So perhaps that's the reasoning behind that. But we are starting to see a bit more of that. But I think at this stage, we've been hearing about this, the first 100 days. It seems to be pretty clear what the categories are going to be impacted. Consumer electronics largely are at the forefront of this. Not going to dodge them in any way.

Rob Rubin (09:43):

I want to jump to our final segment for argument's sake. In our final segment, I want us to argue nicely about this with grace.

Oscar Orozco (09:55):

We'll try.

Grace Broadbent (09:58):

No promises.

Rob Rubin (09:59):

I want to argue about what consumer debt's going to look like in 2026 given everything that we've been talking about. And what I want us to first do is I have three scenarios, and if we could rank those scenarios. So the first scenario is that we're going to muddle through, right? Through 2026, whatever the fed's going to maybe lower rates a bit, Trump's tariffs aren't as bad as everybody says in terms of its impact. Perhaps wages are going to keep up with price increases a bit to sort of dull the effect. So that's number one. Number two is a hard landing, which is that the debt is just going to reach a boiling point, and consumers are going to pull back on spending, and we're going to have a full-on recession where banks are going to start to charge off loans and charge off credit debt and become much tighter in giving out new credit. And that is the hard landing.

(10:55):

And then the third is what I like to call a selective jubilee. So I'm going to explain what a jubilee is.

Grace Broadbent (10:55):

Sounds So fun.

Rob Rubin (11:06):

A jubilee. I have to say it up an octave every time. The government steps in and forgives loans for millions of consumers that start anew. So do we want to give our rankings, or do I want to just tell everybody a little bit about the history of jubilees?

Oscar Orozco (11:21):

Start there.

Rob Rubin (11:21):

I'm going to start there because it's fun, and it's informative. A jubilee is a large-scale government-led cancellation or restructuring of private debt to reset the economic game board. Joe Biden's student loan forgiveness is a really good example of a jubilee. He tried. His executive order was trying to forgive about $400 billion of student loan debt, the original executive order. That was about 25% of all student loan debt. So he wasn't trying to say everybody, we're starting from zero. He was basically taking categories of folks and doing that. But the times go back to what I found in my research even in ancient Mesopotamia.

Oscar Orozco (11:21):

Mesopotamia.

Rob Rubin (12:12):

Right? Right?

Oscar Orozco (12:13):

Wow.

Rob Rubin (12:14):

The royals used to wipe out farm loans to prevent any sort of market collapse and also probably to maintain the money that they're already getting from taxes. So it's like, "You haven't been paying your taxes, but if I take that from you, you're not going to be able to pay me more taxes. So let's just pay me what you ... do what you can." I think that's-

Oscar Orozco (12:38):

Start of civilization.

Rob Rubin (12:39):

Maybe how the conversation went, or the king got killed by his brother and the brother gave everybody a break. Who knows? But that's what a jubilee is, and you can see why I was trying not to get into it. So Grace, what is your order? Muddle through, hard landing, selective jubilee.

Grace Broadbent (13:03):

My order is exactly the way you just said it.

Rob Rubin (13:06):

All you think we're going to muddle through.

Grace Broadbent (13:07):

Most likely is muddle through. Yeah.

Rob Rubin (13:09):

And if we don't muddle through, it's not going to be good.

Grace Broadbent (13:11):

All right. Correct.

Rob Rubin (13:12):

Oscar?

Oscar Orozco (13:13):

Yeah, I'm a bit more pessimistic it seems. I'm at the hard landing here. I mean, I think all the data, much of which we've already discussed is suggesting that we're heading toward a full-on recession here, and it's not going to be pretty. And I think we're going to see the charge-offs and just increasing consumer debt just to keep up with these increasing prices. So pessimistic.

Rob Rubin (13:38):

What's the second?

Oscar Orozco (13:39):

Oh, sorry, yeah. And then it would probably be muddle through. And then the jubilee, I just don't see it, Rob. I don't see it.

Grace Broadbent (13:46):

I don't see it either.

Rob Rubin (13:47):

I'm going with the selective jubilee. And I think that the government in power today is going to use government money to fix it when it breaks, because that's a tool that they have. An example, the farmers bailout from the tariffs during the first Trump administration where they were paying farmers money. I mean, maybe it wasn't paying directly off a debt, but it's an example of getting close to it.

Grace Broadbent (14:19):

I think though if we go back to the student loan example, the Trump administration is so anti that.

Oscar Orozco (14:25):

I was thinking that exactly.

Grace Broadbent (14:27):

So anti-student loan relief.

Oscar Orozco (14:28):

Maybe small businesses, although he literally not long ago was ... Although they've been complaining. Small businesses saying, "This impact is being felt already." He's discounting that fact. So I don't know.

Rob Rubin (14:43):

Hear me out. I think it's going to be in the mortgage area, and it's because it represents the largest chunk of consumer debt. I think they're going to let the banks write off. Maybe they'll protect banks if banks get in trouble with real estate. And I think that that's where the trouble's going to become perhaps apparent. One of the scenarios is that the real estate after the pandemic, real estate prices around the country really exploded, and a lot of people moved. There was a lot of movement going on and a lot of people buying and selling houses at that time. So anybody that might have in 2021 or 2022 taken out an adjustable five-year adjustable rate mortgage on a super low rate is in a panic right now because their new rate's going to be so much higher, and their payments are going to potentially be more than they can afford.

(15:35):

So I think that we're going to see a housing crisis come with mortgages coming due, and that what they're going to do because they've already proven in the pandemic and everything else that they're perfectly willing, they meaning the government, will bail out the banks. So I think that the jubilee is going to be that people's mortgages are going to get forgiven.

Grace Broadbent (15:59):

I think while, I don't agree, there's going to be a selective jubilee. I ranked it last, but I think your reasoning and my reasoning is similar for what we chose. That there will be some sort of a bailout, but I'm thinking the bailout more in terms of Trump might just 180 the tariffs. He's going to see things are going terribly. He's going to pull everything back and not actually let it get to this point. He doesn't want to upset his voters that way. And so I think there is going to be-

Rob Rubin (16:29):

The tariffs are two-way. Right? What's happening now-

Oscar Orozco (16:33):

Yeah, there were [inaudible 00:16:33].

Rob Rubin (16:33):

... is that our trading partners are developing new trading relationships, that supply chains are being adjusted. So him saying, "Ah, this was a mistake." He would never say that, but he could turn on a dime.

Grace Broadbent (16:48):

I mean, I definitely think there will be absolutely repercussions from the trade war that has already existed, but I just think there could be a pullback to avoid the hard landing.

Rob Rubin (16:48):

That hard landing.

Oscar Orozco (16:59):

Yeah. A key metric for me is business sentiment, which of course implies if we start seeing any increases in unemployment, that's a place where I agree with you, Grace. He's going to have to react to that, and I think that would come before any sort of bailouts would need to happen. Right? So let's see if the businesses start feeling it to the point where we're seeing increased unemployment rates. So that's what I would keep an eye on.

Rob Rubin (17:26):

All right. So my order because I haven't said it, so I'm going with selective Jubilee. I think that, and then it's to hard landing actually. That I'm worried that the Fed can't use interest rates to fix it. That the only thing that's going to happen is that there's going to be a hard landing. That even the selective bailout's not going to be selective enough or big enough, and that would increase the debt. I made a big explosion face because we're audio only, and no one can see me.

Oscar Orozco (17:59):

Unfortunately, it feels like that's the path we're on, Rob. Absolutely.

Grace Broadbent (18:04):

Well, I very much hope I'm right not only for my pride, but for the sake of all of our financial wellbeing in the future.

Rob Rubin (18:12):

Well, I would like to say that this has been fun in a way. I mean, we've been talking about a jubilee.

Oscar Orozco (18:21):

And doomsday scenarios.

Rob Rubin (18:21):

How often do I get to raise my voice an octave-

Grace Broadbent (18:22):

That does make it more fun.

Rob Rubin (18:24):

... without seeming sillier? First, thank you, Grace and Oscar for laughing along with me. I appreciate it. This was a lot of fun today.

Oscar Orozco (18:35):

Absolutely.

Grace Broadbent (18:36):

No, it was great chatting with you all. I'm only a little bit scared.

Rob Rubin (18:42):

We're going to all just focus on your day to day.

Grace Broadbent (18:42):

We'll have some laughs in the meantime.

Rob Rubin (18:43):

We're all going to have fun.

Oscar Orozco (18:44):

Thanks for having me on, and it's a great chat.

Rob Rubin (18:46):

Yeah. And I want to thank everyone for listening to the Banking & Payment Show. Also, thank you to our editor, Victoria. Our next episode is on June 10th, so be sure to check it out. See you then. Bye, everyone.

Oscar Orozco (18:58):

Bye.

Grace Broadbent (18:59):

Bye.