The Consumer Debt Elephant in the Room | The Banking & Payments Show

Summary

Behind the Numbers: The Consumer Debt Elephant in the Room | The Banking & Payments Show

Release Date: May 13, 2025

Hosts:

• Rob Rubin - Head of Business Development, eMarketer
• Grace Broadbent - eMarketer Analyst
• Oscar Orozco - eMarketer Analyst

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Introduction

In the May 13, 2025 episode of Behind the Numbers, hosted by Rob Rubin, the discussion centers around the escalating consumer debt and its implications amid ongoing economic uncertainty. Joining Rob are EMARKETER analysts Grace Broadbent and Oscar Orozco. The conversation delves into current debt statistics, the impact of tariffs on retail prices, and forecasts for consumer debt's trajectory in the near future.

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Icebreaker Quiz: Understanding Consumer Debt

Rob Rubin initiates the episode with an engaging icebreaker quiz to set the stage for the discussion on consumer debt.

• Rob Rubin [01:08]: "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 was in Q1 2020, pre-pandemic? How much has debt grown since right before the pandemic?"

Grace Broadbent and Oscar Orozco provide their estimates, revealing their insights into the growth of consumer debt. The actual figure discussed is a post-pandemic spike, highlighting the severity of the debt increase.

• Oscar Orozco [01:58]: "I was gonna be a lot lower. I was gonna say 13, you know, so it's drastically gone well, so this."

Rob reveals the correct pre-pandemic debt was just over $14 trillion, underscoring a substantial rise in consumer debt since then.

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Impact of Tariffs on Retail Prices

Rob transitions to the first major segment, discussing a Wall Street Journal article on how major retailers like Walmart, Target, and Amazon have maintained stable prices despite new import tariffs by leveraging supplier negotiations, accelerating shipments, and stockpiling inventories. However, these strategies are nearing their limits, potentially leading to higher prices and product shortages.

• Rob Rubin [03:08]: "So auto loans is not. You should have. It would have been so good."

Oscar Orozco elaborates on which consumer categories will first experience price increases due to tariffs and other economic pressures, identifying apparel and footwear as the most affected due to their high import rates.

• Oscar Orozco [05:06]: "The top one for me is apparel and footwear. I believe the data states that almost 100%, you know, nearly 100% of all of these products are imported. So they're facing these higher tariffs and it's a major shock for retailers."

This segment highlights the immediate impact of tariffs on discretionary spending categories, particularly apparel and footwear, which are essential yet highly price-sensitive.

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Consumer Spending and Debt Trajectory

Grace Broadbent and Oscar Orozco discuss the dual nature of consumer behavior in response to rising debt and economic pressures. Grace suggests a combination of increased debt and a pullback in discretionary spending, while Oscar emphasizes the likelihood of a recession driven by these factors.

• Grace Broadbent [07:16]: "I do think consumers are going to take on more debt, but also I do think there will be a pullback in spending."

Oscar adds that sectors like furniture and travel are already showing reduced discretionary spending and elevated delinquencies on store cards.

• Oscar Orozco [08:19]: "Even President Trump has been mentioning dol. It's up there with apparel for being very, very impacted by tariffs."

The discussion also touches on the potential decline in categories like toys and consumer electronics due to their discretionary nature and susceptibility to price increases.

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Forecasting Consumer Debt in 2026: Scenario Analysis

In the final segment, Rob Rubin introduces three potential scenarios for consumer debt by 2026:

1. Muddle Through: Economic stability is maintained with possible Fed rate adjustments mitigating debt issues.
2. Hard Landing: Debt reaches a critical point, leading to a recession with increased delinquencies and tightened credit.
3. Selective Jubilee: Government intervention through debt forgiveness or restructuring to alleviate consumer debt burdens.

Rob provides a historical perspective on the concept of a Jubilee, referencing ancient practices and recent attempts like President Biden's student loan forgiveness efforts.

• Rob Rubin [11:20]: "A Jubilee is a large scale government led cancellation or restructuring of private debt to reset the economic game board."

Grace Broadbent and Oscar Orozco weigh in on the likelihood of each scenario. Grace aligns with the "Muddle Through" scenario, while Oscar leans towards the "Hard Landing," expressing skepticism about government intervention.

• Grace Broadbent [13:02]: "My order is exactly the way you just said."
• Oscar Orozco [13:13]: "I think we're heading toward a full on recession here and it's not going to be pretty."

Rob argues for the "Selective Jubilee," suggesting government bailouts, particularly in the mortgage sector, to prevent a housing crisis.

• Rob Rubin [14:44]: "I think it's going to be in the mortgage area and it's because it represents the largest chunk of consumer debt."

Despite differing opinions, all agree on the severity of the situation, with Oscar and Grace expressing concern over the potential economic fallout.

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Conclusion

Rob Rubin wraps up the episode by reflecting on the intense discussion surrounding consumer debt and its future implications. He thanks Grace and Oscar for their insights and humor throughout the conversation.

• Rob Rubin [18:35]: "First thank you, Grace and Oscar for laughing along with me. I appreciate it. This was a lot of fun today."

The episode underscores the critical issue of consumer debt, highlighting its growth, the impact of external economic factors like tariffs, and the uncertain paths forward. Listeners are left with a nuanced understanding of the challenges ahead and the potential strategies to mitigate adverse effects.

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Notable Quotes:

• Rob Rubin [01:08]: "According to the New York Federal Reserve, in Q4.24, consumer debt was $18.04 trillion..."
• Oscar Orozco [05:06]: "The top one for me is apparel and footwear..."
• Grace Broadbent [07:16]: "I do think consumers are going to take on more debt..."
• Rob Rubin [11:20]: "A Jubilee is a large scale government led cancellation or restructuring of private debt..."
• Oscar Orozco [13:13]: "I think we're heading toward a full on recession here and it's not going to be pretty."
• Rob Rubin [14:44]: "I think it's going to be in the mortgage area..."

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Stay Informed: To stay ahead with insights and analysis that matter, tune into new episodes of Behind the Numbers published Monday through Friday wherever you find podcasts.

Transcript

[Rob Rubin]

In today's economy, every ad dollar counts. That's why performance marketers are turning to Rokt ads to reach over 400 million active shoppers in the transaction moment when they're completing a purchase online. You only pay when customers engage. Learn [e-mail] eMarketer that's rokt.com eMarketer hello, everybody, and welcome to the Banking and Payment Show, a 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]

Hey, Rob.

[Grace Broadbent]

Hi, guys.

[Oscar Orozco]

Thanks for having me on. Rob. You know, it's been a few years.

[Rob Rubin]

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

[Oscar Orozco]

Feels like it's been a while. Happy to be back and I think.

[Grace Broadbent]

It'S my first time being on with you, Oscar. So this is exciting.

[Rob Rubin]

I want to have an icebreaker quiz for you guys to sort of 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 20, 20. Pre pandemic, 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 guess.

[Oscar Orozco]

I mean. Go ahead, Grace. You start.

[Grace Broadbent]

I'm guessing 17.1.

[Rob Rubin]

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

[Grace Broadbent]

So it went up. Oh, that might be too much. I might take it back. 17 point.

[Oscar Orozco]

I was gonna be a lot lower. I was gonna say 13, you know, so it's drastically gone well, so this.

[Rob Rubin]

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

[Oscar Orozco]

Oh, all right.

[Rob Rubin]

So the reason.

[Grace Broadbent]

Oh, my gosh.

[Rob Rubin]

I mean, it's bad, right? It's not good, but it's that. Oscar, you're a forecaster.

[Oscar Orozco]

I just.

[Rob Rubin]

It's like an inter for forecasters.

[Oscar Orozco]

Exactly. I'm always within margin of error.

[Rob Rubin]

So here's the next question.

[Grace Broadbent]

You're good at your job.

[Rob Rubin]

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]

I'm going to go with credit card.

[Rob Rubin]

This is relevant later.

[Grace Broadbent]

I think I actually have these.

[Oscar Orozco]

All right, all right, all right.

[Rob Rubin]

So auto, auto loans is not. You should have. It would have been so good.

[Grace Broadbent]

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

[Oscar Orozco]

Grace doesn't need to prove it.

[Grace Broadbent]

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

[Rob Rubin]

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

[Oscar Orozco]

So pretty close.

[Rob Rubin]

So pretty close. So that was a long icebreaker, but it was kind of 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 29 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. 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]

Yeah, this is something we've, we've talked about a lot on forecasting, of course, and the way I thought of it was, you know, sort of two major factors. Right. So one is, of course, just thinking about what category is largely imported, Right. Especially from, 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, you know, the top one for me is apparel and footwear. I believe the data states that almost 100, you know, nearly 100% of all of these products are imported. So they're facing these higher tariffs and It's a major shock for, you know, retailers, you know, and they're essentially having to pass on right away these price increases to consumers.

[Rob Rubin]

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

[Oscar Orozco]

Exactly. Yeah, yeah. And I think, you know, some of the back to school and holiday items are already sort of 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 a top one for me.

[Rob Rubin]

What about, you know, 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? Like you know, is spending going to stay the same and we're just going to see more debt? Are people just going to do they have. 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, a full fledged recession?

[Grace Broadbent]

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. So they're already seeing a pullback in discretionary spending in areas like furniture and travel.

[Rob Rubin]

They report delinquencies on store cards.

[Grace Broadbent]

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 quarters of 24, but now they are, you know, ticking right back sort of staying even. But yeah, payment riders are already starting to see the effects. Also consumers have, it's still early on but in all the surveys I've seen every consumer basically said I do plan on pulling back spending or, and, or you know, 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]

A lot of news about, about dolls, right? Like, like people like you can't, like $30 is too much. People should just get away with $3 is enough now. So is that going to be a category like toys? Is, is that going to get hit Hard?

[Oscar Orozco]

Oh, absolutely. I mean, yes. Even President Trump has been mentioning dol. 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]

Right. And telling kids that they can only have three dolls is extreme.

[Oscar Orozco]

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

[Rob Rubin]

But haven't we seen carve outs or are we starting to see tariff carve outs for certain categories of products? Like didn't I read that electronic, like laptops aren't part of it anymore?

[Oscar Orozco]

Yeah, yeah. There seems to be certain items which, you know, 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. Yeah. Not going to dodge them in any way.

[Rob Rubin]

I want to jump to our final segment for argument's sake. In our final segment, I want us to argue nicely about this. We'll try, Grace.

[Grace Broadbent]

No promises.

[Rob Rubin]

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, 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 null 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 reach a boiling point and consumers are going to pull back on on spending and we're going to have a full on recession where banks are going to start to charge off lo and charge off credit debt and become much tighter in giving out new credit and that is the hard landing. And then the third is what I like to call a selective jubilee. So I'M going to explain what a Jubilee is. 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]

Start there.

[Rob Rubin]

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 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 sort of categories of folks and doing that. But the times go back to. I found in my research, even in ancient Mesopotamia. Yeah, right, right there. 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're not, 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 pay me, do what you can.

[Oscar Orozco]

I think that's start of civilization, maybe.

[Rob Rubin]

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]

My order is exactly the way you just said.

[Rob Rubin]

All right. You think we're going to muddle through?

[Grace Broadbent]

As likely as muddle through. Yeah.

[Rob Rubin]

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

[Grace Broadbent]

Correct.

[Rob Rubin]

Oscar?

[Oscar Orozco]

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, 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 the, you know, and just increasing consumer debt, you know, just to keep up with these increasing prices. So pessimistic.

[Rob Rubin]

What's the second?

[Oscar Orozco]

Oh, sorry. Yeah. And then it would probably be muddled through. And then the Jubilee. I just don't see it, Rob. I don't see it.

[Grace Broadbent]

I don't see it either.

[Rob Rubin]

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. That's, I mean, maybe it wasn't paying directly off of debt, but it's an example of getting close to it.

[Grace Broadbent]

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

[Oscar Orozco]

Maybe small businesses, although he literally not long ago was, was although they've been complaining small businesses saying, you know, this impact is being felt already, he's sort of discounting that fact. So I don't know, hear me out.

[Rob Rubin]

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 is 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 ad 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. So I think that we're going to see a housing crisis come with mortgages coming due and that 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]

I think while I don't agree there's going to be a selective jubilee, I ranked it last. But I think kind of 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 180the terrorists. He's going to see things are going terribly. He's going to pull Everything back. Not actually let it get to. To this point. He doesn't want to upset, you know, his voters that way. And so I think there is going to be.

[Rob Rubin]

The terrorists are two way. Right. Like what's happening now is that our trading partners are developing new trading relationships that supply chains are being adjusted. So him saying this was a mistake. He would never say that, but he could turn on a dime.

[Grace Broadbent]

You know, 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 heartland.

[Oscar Orozco]

I think 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 gonna 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, you know, 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]

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. It's to hard landing, actually that I think if they can't. That I'm worried that the Fed can't use interest rates to fix it. That the only thing that's gonna happen is that there's gonna be a hard landing. That even the selective bailout's not gonna be selective enough or big enough and that would increase the debt. I made a big explosion phase because.

[Oscar Orozco]

We'Re audio only and no one can see me, unfortunately. It feels like that's the path we're on, Rob. Absolutely.

[Grace Broadbent]

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

[Rob Rubin]

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

[Oscar Orozco]

Jubilee and doomsday scenarios.

[Grace Broadbent]

That does make a lot of fun.

[Rob Rubin]

To raise my octave without seeming silly. Er, but I really. First thank you, Grace and Oscar for laughing along with me. I appreciate it. This was a lot of fun today.

[Oscar Orozco]

Absolutely.

[Grace Broadbent]

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

[Rob Rubin]

Yeah, we're going to all just.

[Oscar Orozco]

And thanks for having me on and it's a great chat.

[Rob Rubin]

Yeah. And I want to thank everyone for listening to the Banking and 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]

Bye.

[Grace Broadbent]

Bye.