FEDERAL ESERYE BULLETIN AUGUST 1948 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis EDITORIAL COMMITTEE ELLIOTT THURSTON WOODLIEF THOMAS WINFIELD W. RIEFLER The Federal Reserve BULLETIN is issued monthly under the direction of the staff editorial committee. This committee is responsible for interpretations and opinions expressed, except in official statements and signed articles. CONTENTS PAGE Consumer Credit Trends. 89/- 903 Statement Before the House Banking and Currency Committee. 904- 911 Regulation of Consumer Instalment Credit. 912- 913 1948 Survey of Consumer Finances—Part IV. Consumer Saving and the Allo- cation of Disposable Income. 914- 932 Revised Consumer Credit Series 933- 937 The Philippine Central Bank Act, by David L. Grove and John Exter 938- 949 Second Annual Report of the National Credit Council of France 950- 960 Current Events and Announcements. 960 National Summary of Business Conditions. 961- 962 Financial, Industrial, Commercial Statistics, U. S. (See p. 963, for list of tables) 963-1022 International Financial Statistics (See p. 1023, for list of tables) 1023-1041 Board of Governors and Staff; Open Market Committee and Staff; Federal Advisory Council. 1042 Senior Officers of Federal Reserve Banks; Managing Officers of Branches 1043 Federal Reserve Publications. 1044-1045 Map of Federal Reserve Districts. 1046 Subscription Price of BULLETIN A copy of the Federal Reserve BULLETIN is sent to each member bank without charge. The subscription price in the United States and its possessions, Bolivia, Canada, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, Guatemala, Haiti, Republic of Honduras, Mexico, Newfoundland (in- cluding Labrador), Nicaragua, Panama, Paraguay, Peru, El Salvador, Uruguay, and Venezuela is $2.00 per annum or 20 cents per copy; elsewhere, $2.60 per annum or 25 cents per copy. Group sub- scriptions in the United States for 10 or more copies to one address, 15 cents per copy per month, or $1.50 for 12 months. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis FEDERAL RESERVE BULLETIN VOLUME 34 August 1948 NUMBER 8 CONSUMER CREDIT TRENDS During the three years that have elapsed ket after the wartime curtailment of produc- since V-J Day, the American public has gone tion. In the July issue of the BULLETIN, cur- into debt more rapidly than in any other rent developments in the construction and period in our history. At the same time con- real estate markets were discussed. The sumers in general have been fully employed, present article reviews the recent changes in have received a record amount of income, short-term consumer credit and certain fac- and have continued to increase their excep- tors affecting the future outlook for this im- tionally large holdings of liquid assets. The portant sector of personal debt. large volume of consumer spending from During the war there was a rapid liqui- current incomes, rapid turnover of accumu- dation of consumer credit from a level of lated savings, and increased borrowing, approximately 10 billion dollars in 1941, the accompanied by limits on output of goods highest point ever reached up to that time, and services, have contributed to the upward to just under 5 billion at the low point spiral of prices. reached in 1944. The absorption of current The unprecedented volume of home buy- income in reduction of debt and the restraint ing during this three-year period has added exercised in the incurring of new obligations approximately 10 billion dollars to the out- contributed materially to the efforts during this period to hold inflation in check. At standing mortgage debt on one- to four- family nonfarm homes, bringing the ag- CONSUMER CREDIT gregate of such long-term obligations to [End of month estimates. Amounts in millions of dollars] more than 32 billion. In the same period Amount Percentage out- Change from change from short-term credit extended to consumers has stand- Type of credit ing June June Aug. Sept. June Aug. Sept. risen more than 8 billion dollars to a new 1948P 1947 1945 1941 1947 1941 high of just over 14 billion at the end of June. Total consumer The movement of these two types of credit credit 14,149 2,905 8,573 4,059 154 thus far in 1948 indicates that their combined Instalment credit. 7,192 2,259 5,229 961 266 15 Sale credit 3,399 1,363 2,693 -608 381 -15 total will have passed the 50 billion dollar Loan credit 3,793 896 2,536 1,569 202 71 Noninstalment mark by the end of this year. credit 6,957 646 3,344 3,098 93 80 Charge accounts.. 3,364 477 1,923 1,652 133 96 Expansion in debt may be explained Single-payment loans 2,662 154 1,244 1,113 72 largely in terms of the return of housing and Service credit. 931 15 177 333 23 56 major consumers' durable goods to the mar- Preliminary. AUGUST 1948 897 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONSUMER CREDIT TRENDS the same time a record volume of savings, POSTWAR DEVELOPMENTS IN CONSUMER distributed widely among American families, CREDIT was accumulated. The reduction in debt to- Wide fluctuations in the total volume of gether with the much higher level of per- short-term consumer credit over the years sonal incomes put consumers in a strong have reflected principally changes in instal- financial position. ment credit. For special reasons growing When consumers' durable goods began to out of the war, the period since 1941 has return in quantity, demand was supported witnessed, first, a rapid decline in outstand- not only by the high level of income and ing volume from the 10 billion dollar level the large accumulations of savings of con- of September 1941, and later, an even more sumers but also by their ability to obtain rapid rise to a new high of 14 billion dol- credit on the basis of their strong financial lars. As shown in the chart, consumer credit position. As the savings of some buyers was cut in half over the two years 1942 and were reduced and as terms for credit were 1943 and then nearly tripled. In the short relaxed, more recourse was made to credit, space of three years since V-J Day the aggre- particularly instalment credit, which has gate amount outstanding has increased more shown a continued expansion. than 8 billion dollars, or about 2 billion From September 1941 until last year con- more than in the eight years between the sumer instalment credit, and for a while depression low of the thirties and the pre- other forms of consumer credit, were subject war peak. to regulation by the Board of Governors of the Federal Reserve System under Executive COMPOSITION OF CONSUMER CREDIT OUTSTANDING BILLIONS OF DOLLARS CUMULATIVE TOTALS, END OF MONTH FIGURES BILLIONS OF DOLLARS Order. This regulation was terminated as 16 | 1 1—1 1 1 1 1 1 1 | | | 1 1 i 1 | 1 1—I 16 of November 1, 1947, by Congressional reso- lution. A bill to authorize regulation of in- stalment credit for a temporary period was introduced in the Senate during the special session of the Congress that met in Novem- ber 1947. This measure was passed by the Senate, but it was not voted upon in the House of Representatives prior to adjourn- ment in June of this year. In the special session convening on July 26, identical bills (S. 2910 and H. R. 7062 entitled the "Anti- Inflation Act of 1948") contained among 1930 1932 1934 1936 1938 J94O 1942 1944 1946 1948 other things substantially the same provisions Estimates. Latest figures shown are for June. as were embodied in the bill passed by the Senate. The original Senate bill, with the The importance of changes in instalment termination date changed from March 15, credit is indicated by the chart. The 1942-43 1949, to June 30,1949, was eventually adopted decline in this type of credit accounted for by both Houses and was approved by the more than 85 per cent of the decline in total President on August 16. consumer credit, while the postwar rise in FEDERAL RESERVE BULLETIN Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONSUMER CREDIT TRENDS instalment credit accounted for 60 per cent charge-account balances dropped from 38 of the total rise. Other forms of consumer per cent of the net gain the first year follow- credit fell very little in the early war period ing V-J Day, to only 16 per cent in the past and began to increase earlier than instalment 12 months. The shares of single-payment credit. Their greatest growth occurred in loans and of service credit have also declined. 1946, and in recent months a tendency to These developments point to instalment level out has appeared. Instalment credit, credit as the principal source of future in- on the other hand, has continued upward. creases in total consumer credit. All major segments of consumer credit are above their prewar highs. Reflecting the COMPOSITION OF CONSUMER CREDIT INCREASES moderate decrease during the war and the [Dollar amounts in millions] earlier start of the expansion, noninstalment June 1947 June 1946 August 1945 Type of credit to to to forms show the greatest gains as compared June 1948 June 1947 June 1946 with the 1941 totals. Charge accounts have Total increase...... $2.905 $3,360 $2,308 nearly doubled; single-payment loans are up Percentage distribution of of increase: about 70 per cent; and service credit is esti- Instalment credit.