"The Pulse" --#61 / Consumer Debt Mix

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Recruiting Timeline:

Banking:

Where We’re At:

• SA 2025: AMB Investment Banking opened its application bringing the total bank number up to 116 for the SA 2025 season. As previously mentioned, we will stop tracking this process within a month as we gear up for the SA 2026 season!

• FT 2025: JPM, UBS, and the Burke Group opened their FT apps this week. There are currently 21 firms actively recruiting for FT 2025. Please reach out if you are looking for coaching!

New SA 2025 Applications:

• AMB Investment Banking: Healthcare-focused boutique (SA 2025)

New FT 2025 Applications:

• JPM: Largest bulge-bracket bank (FT 2025)

• UBS: Bulge bracket Swiss bank (FT 2025)

• The Burke Group: Boutique (FT 2025)

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Consulting:

Where We’re At:

• SA 2025: 17 SA 2025 applications have been released so far and 8 FT 2025 applications have been released.

SA 2025 released apps:

• KPMG: Advisory Intern, Deal Advisory - Financial Due Diligence (SA 2025 - Closed)

• PWC: Business Processes Intern (SA 2025 - Closed).

• Curtis & Co: Boutique firm (SA 2025 - Closed)

• Protiviti: Tech Consulting (SA 2025 - Closed)

• RSM: Tech, Risk, and Business Improvement Intern (SA 2025 - Closed)

• Deloitte: Business Technology Solutions Summer Scholar (SA 2025 - Closed)

• Berkeley Research Group: Associate Consultant Intern (SA 2025)

• Oliver Wyman: Summer 2025 Intern (SA 2025 - Closed)

• Bain: Associate Consultant Intern (SA 2025)

• Cavi Consulting: Consulting Associate Internship (SA 2025)

• McKinsey: Summer Business Analyst (SA 2025)

• BCG: Associate Consultant Intern (SA 2025)

• Redstone Strategy Group: Consulting Intern (SA 2025 - Closed)

• KPMG: All Practices including management consulting (SA 2025)

• Alpha FMC: Consulting Intern (SA 2025)

• DSP Strategy: Consulting Analyst Intern (SA 2025)

• FMI Corporation: Strategy Analyst Intern (SA 2025)

FT 2025 released apps:

• LEK: Associate Consultant (FT 2025)

• Charles River Associates: Associate (FT 2025)

• New Market Advisors: Associate Consultant (FT 2025)

• McKinsey: Business Analyst (FT 2025)

• OC&C: Associate Consultant (FT 2025)

• Qral: Management Consultant (FT 2025)

• FTI Consulting: Entry-Level Consultant (FT 2025)

• Lake Partners Strategy Consultants: Strategy Consulting Analyst (FT 2025)

Apply ASAP if you’re interested!

Buyside:

Where We’re At:

• SA 2025: Greystar and Franklin-Templeton Investments opened their SA 2025 apps this week. So far ~110 buyside shops have opened applications.

SA 2025 released apps:

• Greystar: Real estate acquisitions (SA 2025)

• Frankling-Templeton Investments: Large asset manager, equity investments team (SA 2025)

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Market Update:

U.S. Consumer Debt Mix

Today, we are diving into the consumer debt mix (% fixed vs. % floating) and will be evaluating the financial strength of consumer balance sheets ahead of a higher for longer scenario.

As previously noted, consumer performance is critical for economic success in the U.S. as consumer spending represents about 66% of the GDP.

Some quick stats to set the tone:

• Latest PCE at 2.5% YoY for June (lowest in a long time)

• Federal Funds Rate: 5.25-5.50% (highest in a long time, ~500bps jump over 2.5 years)

• Consumer debt payments as a % of disposable income (“DTI”) at 9.8% (low on a historical basis)

Part 1: Consumer Spending & Savings:

From these quick stats, we can see that people are continuing to spend at a rapid, yet decelerating clip with the PCE of 2.5% still greater than the beloved 2% benchmark.

Now, tack on the rise in interest rates and we can see that people have also been saving less.

Consumers certainly aren’t spending recklessly. In fact, consumers have steadily shed discretionary spending to lower the monthly bill. Yet, the rapid inflation of the latter half of 2021 and the entirety of 2022 led to a dramatic increase in prices of all goods and services.

Greater interest expense + greater prices of goods & services = an erosion of pandemic savings.

Part 2: The Consumer Balance Sheet:

Just like companies, every person or household also has a balance sheet. For people, the assets side of the balance sheet includes items like homes, cars, stocks, bonds, cash, bank accounts, etc

However, the assets side isn’t all that interesting. What we want to analyze is the other side of the balance sheet—specifically the liabilities.

Regarding liabilities, for people these are typically in the form of consumer debt like mortgages, auto loans, credit cards, home equity lines of credit, etc. Take a look at the chart below to see how someone’s liabilities shake up.

Two things quickly jump out:

1. Consumers have mostly fixed-rate debt in the form of true loans (mortgages 70%, auto loans (9%), and student loans (9%))

2. Consumer floating rate debt is mostly revolving debt (Home equity lines of credit (2%) and credit cards (6%))

So, is this good news or bad news? Really good news. The average consumer has a DTI of only 9.8% ("The Pulse" --#51 / Total Market Factor Index (beehiiv.com) and the bulk of their debt is concentrated within fixed-rate, high-priority, long-tenor debt which was likely secured during ZIRP.

This partially explains why the DTI is historically low as wages have grown, but monthly debt payments haven’t really changed. As of today, consumers haven’t had to worry much about the higher interest rate environment because they locked in great rates for long durations.

Regarding floating rate debt, it represents a low % of the total consumer leverage profile and the revolving nature makes it containable ("The Pulse" -- #26 (beehiiv.com). Can’t pay it, don’t draw on it. Simple as that.

Alternatively, if you don’t pay it lenders won’t allow you to draw more. This is a structural concept of the consumer leverage profile that is flying under the radar. With a mortgage, you receive a lump sum of cash to help pay for your home. However, with a credit card or a home equity line of credit, you draw what you need over time to finance the purchase of whatever you like. By this nature, you aren’t really in possession of a whole lump of floating rate debt all at once.

And if you do default, the consumer is only on the hook to repay whatever the small draw amount was + any applicable interest and fees (which can definitely be material)

Part 3: When Does the Fixed Rate Debt Become a Problem?

Theoretically, if rates persist around 5% into perpetuity, then consumer fixed rate debt will gradually transition from low, fixed rate payments to high, fixed rate payments. Assuming the debt balance stays overweight fixed-rate, consumers will be more financially constrained.

See the quick logic below (mortgage example):

The same mortgage today is 3.5x more expensive than a low-rate mortgage secured in the ZIRP era. What I’m saying here is that as higher for longer persists, the cheap fixed-rate consumer debt of today (safe-haven) is bound to transition into more expensive fixed-rate debt (problem). As time kicks forward, people will sell houses, move locations, buy bigger houses, etc. They will transact.

As they transact, the benefits of ZIRP fade. You can always refinance…until you can’t.

A mortgage is the longest-tenor instrument to consider in the consumer leverage profile. Auto loans, which are typically only a few years in tenor are bound to transact quicker and ultimately begin stacking the consumer with expensive, fixed rate debt carrying 5+% interest rates (auto loans from ZIRP are starting to roll off and the effects of greater rates can be seen in the higher auto loan delinquencies: Household Debt and Credit Report (Pages 13 + 14)

The takeaway is that the consumer is in good shape today, but they are supported by cheap, fixed rate debt, which is bound to transact into expensive, fixed rate debt as higher for longer persists—-3.5x more interest expense leads to significantly less wholly disposable income to be spent on goods and services. Naturally, the timing of cuts comes into focus here.

Disclosure: Nothing written here is financial advice or should be used for investment decisions.

MBB Vs. Big 4

Characteristics of MBB:

• Examples: Bain, BCG, and McKinsey

• The most sought-after firms to work for within management consulting

• Pure strategy consulting firms that serve top-tier, large clients

• Leaner teams with a more collegial environment

• Higher starting salary ~$100-$130k (inclusive of bonus). McKinsey is a strong outlier with higher pay even amongst the MBB

• Shittier WLB (still far better than banking)

• Interviews are much more technical / case-heavy

• Exit opportunities are strong and diverse (think strategy roles for Fortune 500s or PE roles)

Characteristics of Big 4:

• Examples: PWC, EY, Deloitte, and KPMG

• Strong management consulting programs, but there are many other departments and roles outside of consulting

• Also, work alongside large clients within the Fortune 500

• Larger teams, arguably worse exposure

• Starting salary ~$75-$100k (inclusive of bonus). KPMG is known for paying less.

• Better WLB because there are more people (can be a 40-50 hour/week job)

• Interviews are less technical and less competitive

• Exit opportunities are worse than MBB but better than smaller boutiques

Going Forward:

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“The Pulse” #61