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Market Pulse is a monthly podcast by Equifax, in partnership with Moody’s Analytics. Equifax hosts bring you interviews with industry experts on the latest economic and credit insights that can help drive better business decisions. Whether you’re in financial, mortgage, auto or another service industry, we help make sense of the latest economic conditions that impact you. This podcast series supplements our Market Pulse webinars, which occur on the first Thursday of each month.
Welcome to the Market
Pulse podcast from Equifax,
where we break down the latest economic
and credit insights to help you navigate
today's business landscape.
Welcome to Market Pulse,
a podcast from Equifax where we explore
the latest economic and credit trends
and what they mean for lenders
and financial institutions.
I'm Olivia Voltaggio with Equifax, and
I'm thrilled to host today's episode.
There's certainly no shortage
of economic headlines right now.
We're watching interest rates,
employment, consumer spending,
and the housing market,
while overall uncertainty continues to
complicate the outlook. But for lenders,
the bigger question is, what does all of
this mean for consumers, credit demand,
and risk?
Joining me to help us make sense of the
current environment is Justin Begley,
an economist with Moody's Analytics.
Justin, welcome back to Market Pulse.
Thank you. It's good to be here.
Great to have you back. Justin, let's
start at the 30,000 - foot view.
If you had to describe the US economy
right now in just a few words,
what would you say? And what are the most
important forces shaping that outlook?
I think I would describe the US economy
as just broadly fragmented right now.
There are two drivers of
growth. On the one side,
you have investment in AI and the
infrastructure that is needed to
support that the adoption of
that technology. And then also,
you have a fair bit of
spending by well-to-do
consumers,
which in many ways has been powered
by stock market gains that have
also been linked to AI.
So in some ways the two
main drivers of growth are
interlinked. And then you
also kind of have some,
some other smaller, but yet
important areas that are,
that are driving growth as well.
So we have this influx of tariff refunds,
which in some ways is acting
like stimulus for firms that,
that paid tariffs under the International
Emergency Economic Powers Act
that was ruled unconstitutional
by the Supreme Court.
And now they're getting
a lot of those back.
And there's also been some other tax
cuts on the individual side and the
business side that seem
to be supporting growth.
But that's not without its headwinds
though. The economy is facing a number of,
of clear headwinds,
including the war on Iran,
which has raised economic policy
uncertainty and geopolitical uncertainty
as well as energy prices.
And we've actually found in
our own research that the
increase in energy prices
for households has more than fully eaten
away the increase in the tax refunds
that were higher this year
because of the one big,
beautiful bills, tax cuts.
So you have that increased inflation
from the energy price shock,
and then also you have tariffs adding
to inflation a little bit as well.
And it's made the monetary policy
outlook a fair bit more uncertain.
So we have those two
headwinds. And then finally,
the labor market is also in a tough spot.
There's a kind of a reluctance
by firms to hire right now,
and that's playing a role in
keeping growth relatively tame.
But so is the declining
labor force participation.
We have a real labor force supply problem
right now for a number of reasons.But
those are some of the main things
that I would say characterize the
current relatively fragmented US economy.
Yes. There's been a lot for the economy
to absorb over the past year as you just
summarized.
What has surprised you most about
resilience or lack of resilience in the
economy?
Well, yeah.
I think the US economy has been remarkably
resilient over the past few years.
If you kind of go back
to the beginning of 2025,
and especially April 2025,
when the president had
announced his Liberation Day,
tariff announcements where tariffs were
going to be the highest we've ever seen
most forecasters expected higher,
higher inflation and slower
growth throughout the year.
But consumer price inflation averaged
about 2.6% throughout the year,
which was lower than
the 3% average in 2024.
And the economy grew at about
its potential rate of 2%.
And largely this is all because firms,
on the one hand, on the price side,
kind of ate a fair bit of the tariff cost,
being reluctant to pass those
costs down to consumers.
And then on the demand side,
consumers just continue to spend.
And so add that then to the
relatively unexpected investment
and very huge level of investment into
AI infrastructure that has really been a
welcome surprise.
All those things kind of offset some
of the headwinds that have been cutting
against growth. So I think that
the economy has been resilient.
Certainly there's some problems,
but I've been very surprised as to how
well the economy has done despite all
these headwinds.
When you look six to 12 months ahead,
is what does your baseline
outlook look like?
Is it relatively optimistic or are the
potential downturn risks becoming more
significant? I.
Don't want to undermine the
significance of the downside risk,
but I would say that we
are relatively optimistic.
We expect inflation to cool in the year
ahead as the effects of the energy price
shocks start to disappear and that
the economy grows kind of north of 2%.
I will caveat that by saying that this
depends on no further escalation in the
Middle East conflict.But nonetheless,
that's kind of our outlook. We're a
bit less sanguine on the labor market.
Job growth is expected to be slow
for the remainder of the year,
and we don't think it will pick up much
in 2026 given some of the labor supply
issues.
We could turn to the labor market now
since you have been mentioning it.
One of the most important supports
for credit consumer performance is
employment.
And the labor market's been obviously
very important to the economic story over
the past several years. So what is the
labor market telling you right now?
Well, not to sound cliche,
because this term is probably
overused at this point,
but we remain in something
that looks like a low hire,
low fire labor markets.
Kind of abstracting from the occasional
news headlines.Layoffs have not
meaningfully picked up, which is,
which is a good thing.But hiring
has been very tepid. You know, July,
July's jobs report was pretty
bad altogether, and not
just because there was a,
a net payroll decline
of 23,000 on the month.
The local government shed about 57,000
jobs, which seems to be more like a,
like a seasonal factor problem
than a real decline in jobs.
But if we just kind of exclude government,
job growth has averaged about
40,000 over the past three months,
which is about half of what it
was in the first quarter.Moreover,
more than 100,000 jobs that we
thought were gained in May and June
were revised away in the July report.
So hiring remains very tepid. And also,
if you kind of just look at the industry
detail, it's very segmented. And,
healthcare is really kind of in the
driver's seat where most other industries
are not meaningfully
adding jobs right now.
The household survey paints an even
more pessimistic picture of the labor
market. So there's every month,
two surveys that get released that get
kind of their own look at the labor
market.
So what I was just talking about was
the establishment survey or the payroll
survey. The household survey is
where we get the unemployment rate.
And so while the unemployment
rate decreased again in July,
falling to 4.1% for the first time
since last June that's really the
extent of the positive news that
the household survey is getting.
Both household survey employment and
the labor force continue to decline in
July.
And the labor force is down by nearly
1.4 million since the beginning of the
year,
which has pushed the participation rate
to its lowest point since early 2021.
So that's a real problem for businesses
that even those that want to try to
hire. In fact, this is particularly
an issue among small businesses.
Even those that want to
try to hire, they're not,
they can't find the workers right now
because there's such a decline in the
labor supply.
But then you also match that with a
relatively weak demand for workers
and you also take account of that
decrease in the labor supply.
It's actually kind of pushed the labor
market towards what looks something like
an equilibrium,
which suggests that growth will be
pretty minimal in coming months.
Yeah. So when we look beyond the
headline unemployment numbers,
are there other signs beneath the surface
that suggest the labor market's either
stronger than weaker or than it.
Appears? Yeah. Well, the,
the labor market is definitely weaker
than the unemployment rates suggest,
and the softness in hiring and slowing
wage growth is certainly showing that.
If you look at employment
measured by the household
survey,
which again is different from the
payroll report that typically gets cited,
employment has fallen by more than 900,000
since January. And that would
typically suggest, all else equal,
the number of unemployed workers
would go up. But over the same period,
the number of unemployed workers has
actually declined because the labor force
has, once again, shrunk by 1.4 million,
even while the population of
persons eligible to participate
in the labor force has expanded
by more than one million.
So that's a lot of data points,
but the gist is that the decline in the
labor force is pushing the unemployment
rate lower than it would be
under normal labor force trends.
So then let's connect
that directly to credit.
How important is the labor market
to your outlook for consumer credit
performance over the next year?
And what would have to happen
in employment for you to
become significantly more
concerned about
delinquencies and defaults?
The labor market outlook
is very important.
Despite the problems that
we've already discussed with
interpreting the unemployment rate,
it remains the single most important
indicator to watch for household credit
performance. In fact,
if we just kind of look at a
basic correlation coefficient
between the total 30
plus day delinquency rate across
all consumer credit segments
and the unemployment rates, it's like 0.9.
So they're very closely
linked. And so because we,
our baseline outlook is that the
unemployment rate will remain just about
between four, four and a half
percent over the next year,
we think that delinquencies will also
remain pretty stable. But of course,
if we see a meaningful increase in
the unemployment rates because firms
start choosing to lay off workers,
or maybe even we get an increase in
the labor supply somehow that that
is not met with an increase in labor
demand and therefore there's more people
kind of looking for
work but can't find it.
But then we're going to see
consumer credit performance
deteriorate quite a bit.
So then let's turn to the consumer since
that's where many of our listeners are
especially focused. For quite some time,
we've talked about the resilience
of the American consumer,
but that resilience hasn't
necessarily been shared equally.
How would you characterize the
financial health of consumers today?
Yeah. There's so much
to say here, but I'll,
I'll just start by saying in aggregate,
so if we just abstract from all the
particularities of people's income of
demographics of their kind
of household finances,
I would say that things
are looking okay. You know,
real disposable income growth is
pretty weak because of high inflation,
but because we expect inflation
to continue to improve
in the coming months as
the energy price shocks
effects disappear.We think
that real disposable income
growth will start to improve.
Wage growth is slowing and
advanced slower than inflation in
the second quarter,
which is not a good sign.
But more recent data also kind of
suggests when we look at the monthly data
that's been coming out more recently,
suggests that things have
improved somewhat. But again,
labor supply and demand are
just about at equilibrium.
So unless there's a meaningful increase
in productivity, which, you know,
productivity growth is pretty strong,
but we need to see more
to really drive wages.
We shouldn't expect wage growth to
grow sufficient to support a meaningful
expansion in consumption.
Looking at households though,
especially those that own assets
like stocks and, and homes, well,
they're benefiting from
the appreciation in
values of those assets over
the past several years,
and that has powered a lot of spending
in the economy. And then finally,
just broadly speaking on
household balance sheets, again,
looking in the aggregates,
things look okay.
Overall delinquency rates are lower than
before the pandemic and you know, just
slightly lower and have been
pretty stable, actually.
Most likely due to the relatively
tight lending standards that have
been in place over the last
few years. And then finally,
just looking at household
debt service payments,
they're very low compared to
its history. So altogether,
it suggests that consumers
are doing okay in aggregate.
We've talked on Market Pulse a lot
about this idea of a K-shaped economy,
and what we refer to as thrivers in our
Market Pulse Index report may be doing
quite well while other households or
strivers are under considerably more
pressure. Are you still seeing
that divergence? And if so,
is the financial divide
continuing to widen?
We are still seeing that divergence,
and the K-shaped economy does
remain a problem. You know,
when looking at the data in aggregate,
again, things don't look so bad, but,
you know, as you allude to, there's start,
there's some cracks under the surface.
And this is pretty clear when
looking at the spending data.
We actually take data from the Federal
Reserve's financial accounts release and,
and kind of combine it with the survey
of consumer finances and estimate that
the top 20% of income earners
are responsible for about 60%
of total personal outlays. And
these consumers especially have,
as I mentioned before,
benefited from the positive wealth
effects resulting from recent stock market
and house price gains. And, and of
course, if you feel more wealthy, well,
then you're going to be
more willing to spend.
But if we look at growth in
personal outlays since the pandemic,
so not even just the
share of total outlays,
but just looking at the growth
over the last six or so years,
the top 20% has increased
their spending by about 60%. ,
But the middle 40% and the bottom
40% o- of income earners have
increased their spending
only by about 30%.
And keep in mind that over that period,
the CPI has risen by about 26%.
So growth and real spending by the bottom
80% of income earners has been pretty
anemic. And,
and if we look at goods and services that
each income quintile spends on spends
their earnings on, well,
we find that those lower quintiles
of income earners have experienced
higher relative rates of inflation because
of their high propensity to spend on
necessities like food and energy
and clothing and even housing,
which have had some of the higher rates
of inflation over the last few years.
And if I could just throw
one more data point in there,
delinquencies for subprime borrowers
are at about a decade and a half high.
And I submit that subprime borrowers are,
I'm going to classify those
as those with credit scores
below 660.
But there's been pretty much some
stabilization in the increase in recent
months, but the stress that is in that
side of the market is pretty concerning.
So, I think that you
know, credit scores are
not necessarily determined by
income, but they are correlated.
And so that's just another,
another data point to suggest that the
K-shipped economy really hasn't been
getting better.
And for lenders,
averages can sometimes obscure what's
happening underneath the surface.
Which consumer segments are you
watching most closely right now,
and where are you seeing the
greatest signs of financial stress?
That's a good question. I'm
paying attention to a few things.
So the first thing I'm keeping a close
eye on FHA mortgages.FHA mortgages
are not necessarily solely
utilized by low and middle income
households, but they tend to make up
the majority of people who take on those
types of loans.We're seeing a lot of
stress in that segment.
The delinquency rate for FHA mortgages
is at about a 15-year high if
you ignore kind of the temporary
spike during the pandemic. Now,
some of this is policy
driven, I submit. You know,
as of October of 2025,
distressed borrowers entertaining
a home retention option that,
that have an FHA mortgage are now
required to make three consecutive trial
payments before being reclassified to
current on their loan. Whereas before,
the reclassification would basically
happen immediately. But nonetheless,
rising FHA mortgage delinquencies signal
that there is a fair bit of stress
among lower and middle
income households that,
you know, can't,
or at least are falling behind on what
is perhaps the most important monthly
payment that they have, their,
the payment for their home.But I'm
also looking at subprime credit stress
broadly.But there's two areas
where I think we can zero in on.
The first is credit cards.
So credit card delinquencies are actually
pretty stable altogether.And even if
you look at, for instance,
the delinquency rate on
subprime borrowers, even
it's high for credit cards,
but it is also pretty stable.
But I've recently seen some delinquency
rates that have been reported by banks
that cater more to prime
and super prime borrowers,
and also those delinquency rates reported
by banks that tend to lend to more
prime or subprime borrowers, and also
those that lend kind of via retail cards.
And the spread in the delinquency
rates reported by those banks
is the highest or largest
it's been since 2010.
So that's something to keep an eye on.
And the second thing there
on the subprime credit stress
issue is in the auto segment. So auto
loan delinquency rates are pretty high,
but they're overall, overall pretty
stable as well.But for subprime borrowers,
they're at an all time high.
And many many of these borrowers
likely took out loans as interest rates
were rising just before lending standards
began to meaningfully tighten. And,
and so, you know,
when we're looking at kind of where the
stress is popping up in the auto loan
segment, it's coming from
auto the auto finance segment,
which not necessarily the general rule,
but tends to have a little bit
looser standards than the auto bank.
So that's also something that
I've been watching pretty closely.
And there's other things, you know,
you can look at student loans,
you can look at historically
low savings rates,
but I think those three things
are topping my list right now.
Yes, let's focus a bit on consumers'
ability to borrow and their willingness to
borrow. What are you seeing in
terms of overall demand for credit?
Yeah, I mean, demand for credit is
pretty interesting right now because
altogether, it's relatively low. I mean,
banks looking at the the senior loan
officer opinion survey that comes out from
the Fed.They're reporting pretty
low lending I'm sorry, pretty
low demand for, for loans.
And then our own data, if we're
looking at growth in originations,
I would say it's at best okay.And a
lot of it's being driven by home equity
loans and lines of credit, and there's
some various reasons for that. But yeah,
I would say that demand for loans,
just given the high interest
rate environments, it's not that,
it's not looking that great right now.
When you break it down by a product,
mortgage, auto, credit card,
personal loans,
where do you see the biggest opportunities
or challenges for lenders over the
next year?
Yeah. So, I mean, I think anything
high rate and long-term is going to
be a struggle right now.
So mortgages are kind of a case in
point.The affordability problem in the new
and existing home markets is pervasive
and keeping demand pretty low altogether.
And, kind of if you if
you look at, for instance,
the supply of existing homes it's
still very tight.The so-called lock-in
effect where homeowners with low
rate loans originated before 2022
they still just don't want to trade up
at the cost of a significantly higher
interest rate on their loan.So that's,
that's causing just interest rates to
be kind of determinative for, for the,
for the housing market right now.That
said also kind of looking within the
residential segment, many of these exact
same homeowners are starting to draw,
in fact, they have been for a while now,
draw on their home equity to
expand or renovate renovate their
home.
So there is opportunity there.But many
consumers are also turning to revolving
credit to kind of make ends meet,
particularly lower income households
that are the most kind of financially
strapped. I've looked at origination
data recently that suggests
kind of actually the subprime
despite tight lending
standards,
the subprime segment is actually borrowing
at some of the faster ratesofamong
kind of the credit distribution. Now,
some of that is kind of payback from just
very low lending to that segment over
the last couple of years, but it is
interesting nonetheless.And then I,
as I mentioned earlier,
there's a fair bit of stress in the auto
loan market and kind of a net majority
of banks, weirdly though,
are loosening standards on
new and used auto loans,
and that's according to the senior
loan officer opinions survey.
So that presents a risk, a real risk,
given how high subprime auto
loan delinquencies have gone.
Do you think there's pent-up credit
demand waiting for rates to come down?
In other words,
could even a modest improvement in
borrowing conditions meaningfully change
demand, or are affordability constraints
bigger than interest rates alone?
There probably is some pent-up
demand, particularly in housing,
but it's a catch-22 because, of
course, if mortgage rates fall, well,
that might result in more home
buying.But then home equity borrowing
might decline as well because people who
have been locked in those homes might
say, "Well, I don't want to
keep expanding this
home or keep renovating,
so why don't we just go buy a new
house?" So there, there is kind of
a catch 22 there.
Consumers are probably less rate
sensitive for something like credit cards.
And so you know, I doubt there's
a lot of pent-up demand there,
but there is solid evidence to
suggest that an increase in rates has
persistently negative impacts on
borrowing. So a decline would likely show,
I think, the opposite
effect. But at the same time,
affordability constraints, I think,
remain sufficient to limit growth
in borrowing, even if rates fall.
Prices are just still very high. And,
a decline in rates would
only further spur demand,
which would potentially
cause prices to go higher,
which would limit how much
borrowing might increase.
Yes, as you've mentioned,
housing is probably one of the
clearest examples of that affordability
challenge.
Many existing homeowners have relatively
low mortgage rates and significant
equity while prospective buyers are facing
both elevated home prices and higher
financing costs. What
ultimately unlocks this market?
Is it lower mortgage rates,
more housing supplies,
slower home price appreciation, or
some combination of all three? A.
Combination of all three would certainly
be helpful.But supply probably is
the key here.
We've estimated in our own research
that the nation's housing shortage is
about
two million.But some estimates
actually go as high as eight million.
So more supply, assuming that demand
remains constant, will lower prices,
and perhaps even enough to make a
higher mortgage rate a little bit
more palatable to buyers. Now,
there's been some efforts to do this.
Congress passed the Road to Housing Act
to try to unlock more housing supply
this year, but even then,
it's likely only going to
support a modest expansion of
the housing supply, because
really, at the end of the day,
this is a local issue.
The federal government has
trouble touching things like
zoning laws that prevent
greater expansion of the housing supply.
So we're really going to need to see
more progress at the local level.
But that said, an increase in
supply also wouldn't come
without its own consequences,
at least to current homeowners. You know,
if there's a sufficient increase in
supply that drives down prices, well,
you unlock housing affordability
for potential home buyers.
But that will deteriorate
the wealth of homeowners.
So given that positive wealth effects
have been such a key driver of
consumption over the last few years,
as those wealth effects from an increase
in supply turn negative on the housing
side, that actually could spur a, you
know, a potential problem for consumption.
And so this is economics. There's always
trade-offs to, to economic policy,
but these are things that I
think should be considered.
What should mortgage lenders realistically
expect over the next year in terms of
purchase activity and refinancing?
Well, because mortgage rates
will remain high in our view,
refinancing will probably be minimal,
at least keep to the status quo.High
rates and affordability concerns will also
keep purchase activity pretty sticky. And
I don't think we're going to
get a meaningful increase in
the housing supply either.
And so, altogether,
we probably stick to the status quo on
that as well. Now, new home building,
too, because the solution for a while,
as existing homes as the existing
home supply kind of dried
up and, and now existing home sales are
near all-time lows the solution was,
of course, to expand supply.
Let's get new homes on the market.
Let's get more people
attracted to new homes. Well,
now even new home building is being
weighed down by weaker builder confidence
and high costs associated with
terrace on lumber and steel
and aluminum and things that are necessary
to construct a home. And then also,
some of the immigration policies have
resulted in labor constraints in the
construction industry. And so, weaker
building is also going to keep,
on the new home side, sales from
growing meaningfully over the next year.
So I want to start to wrap up by bringing
everything we've discussed together
for our lending audience.
We have an economy that at the aggregate
level may look relatively healthy,
but underneath those headline numbers,
there can be very different
experiences across consumers.
If you're a lender making decisions
about growth and risk today,
what economic indicators would you
be paying the closest attention to?
Yeah. Well,
I think it is important to look
at the traditional indicators,
look at the unemployment
rate, look at job growth,
look at the underlying
components of GDP. You know,
we can discuss some of the issues with
interpreting some of those things,
but they're still important.But as
you say, looks can be deceiving and,
or at the very least, not always tell
the full story. So if I'm a lender,
I want to look at, at
the underlying drivers.
For example is there a demographic
that's driving the labor force decline,
such as retirees?
Or is there an industry that's responsible
for much of the recent increase in
jobs, like healthcare, for
instance? What's driving GDP growth?
Are all consumers helping to grow
the economy or just the well to do?
Is private fixed investment rising
broadly or is it primarily being driven by
AI? So those are just some of
the details that I would want,
I would want to know if I'm a lender.
And how should lenders think about
balancing those two objectives right now,
managing risk without becoming so
cautious that they miss credit-worthy
consumers and opportunities for growth?
Yeah, that. It's a tough question
because every lender is so different.
They cater to different regions, different
populations, different demographics.
Each lender needs to assess their loan
portfolios and their underlying nuances
and, and their own risk appetites.
Broadly speaking though,
I would just say that,
that lenders need to identify where the
stress is and then price accordingly.
Yeah, stress test your portfolios
under various economic scenarios to
identify potential exposure.
And, and then also,
just as we've talked a little bit
about today recognize that just the,
the amount of stress that's building
in the subprime segment.And, and, and,
and I think it's reasonable to
say that there's good reason to be
weary there. So just look for
stress and then price accordingly.
I think that's kind of the main advice.
Well Justin, as always,
thank you for helping us make sense
of what's happening in the economy,
and more importantly, what it
means for lenders and consumers.
Thank you so much.
Yeah, happy to be here
again. Thanks for having me.
And thanks to everyone for
listening to Market Pulse.
To hear more conversations about the
economic and credit trends affecting your
business, subscribe to Market Pulse
wherever you listen to podcasts.
I'm Olivia Voltaggio with
Equifax. Thanks for listening,
and we'll see you next time.
The information and opinions provided
in this podcast are intended as general
guidance only and are subject
to change without notice.
The views presented during the podcast
are those of the presenter as of the date
this podcast was recorded and do not
necessarily reflect official positions of
Equifax.
Investor analysts should direct
inquiries using the contact us box on the
investor relations section at equifax.com.