Economists at the Federal Reserve Board of Governors track an extensive array of economic and banking data that are made available to the public as statistical releases. While current data can be found on the Board’s website, thousands of historical issues are available on FRASER. Although the Fed’s need to capture data on Federal Reserve member banks or the national money stock may seem obvious, a little investigating is needed to find the reason for creation of other statistical releases. The G.17.2 release, which was recently adapted from FRASER materials into a FRED data series, captured data on instalment[1] accounts from three different retail sectors—household appliances, jewelry, and furniture—from 1941 to 1953. A quick glance at the release may not explain the Fed’s interest in tracking this information, but the answer can be found with a little searching through FRASER.
Installment credit is an arrangement to immediately obtain some good or service that will be paid for in regular monthly payments (like a car loan). Unlike a credit card or other revolving line of credit, under an installment arrangement, to borrow more you have to apply for another loan. Historically, many items could be purchased with installment credit, including refrigerators, jewelry, furniture, and cars.
In 1941, the U.S. economy began to thrive, in large part because of defense spending for World War II. Employment and income rose to new heights, which meant people could spend more on products. With higher incomes and few regulatory limitations on credit, consumers could spend at a higher rate. However, higher consumer spending coupled with competing high defense spending could create a large problem for the economy. The influx of more buyers in the market meant producers would be unable to keep up with demand,[2] which could lead to price increases and inflation. Inflation would increase defense spending and endanger the economy. In addition, the raw materials used to produce those durable goods were often the same ones needed to produce defense products. Curbing consumer spending became pertinent to ensure the health of the economy, and a reasonable place to start was installment credit.
To combat this problem, President Franklin D. Roosevelt issued Executive Order 8843[3] in 1941, making installment credit subject to regulation by the Board of Governors of the Federal Reserve System. Under this new authority, the Board of Governors created Regulation W, which attempted to alleviate some of the instability caused by unregulated installment credit, curbing the competition between consumer spending and defense spending. To ease public mistrust about the new regulation, the Board of Governors released a statement to the press stating that “…we can produce both for defense and for civilian consumption. And the aim of all policy should be to increase production to the fullest possible extent. But we know that there are acute shortages of certain metals and other strategic materials. We know that beyond a point our plants cannot turn out more and more goods for the public and the same time produce more and more for defense. The imperative demands of defense must have the right of way over civilian needs.”[4]
Regulating retail credit was one of many wartime actions intended to ensure a healthy economy and military success, and tracking retail consumer installment credit was essential to tracking the efficacy of the regulations. The G.17.2 release monitored consumer installment credit only until 1953,[5] but data on other areas of consumer credit can be located on FRASER.
[1] Editor’s note: The spelling of “instalment” is taken directly from the Board of Governors’ release. The spelling of “installment” versus “instalment” wasn’t standardized when these data were collected in the 1940s. When referring to the publication, we use “instalment,” but when discussing the concept, we use the modern spelling.
[2] Goldenweiser, E.A. “Inflation.” Federal Reserve Bulletin, April, 1941, pp. 291-93. https://fraser.stlouisfed.org/scribd/?toc_id=70428&filepath=/files/docs/publications/FRB/1940s/frb_041941.pdf&start_page=13
[3] “Executive Order 8843 Directing the Federal Reserve Board to Curb Installment Purchasing.” August 9, 1941. https://www.presidency.ucsb.edu/documents/executive-order-8843-directing-the-federal-reserve-board-curb-installment-purchasing
[4] Board of Governors of the Federal Reserve System. “Statement for the Press.” August 23, 1941. https://fraser.stlouisfed.org/files/docs/historical/eccles/eccles_19410823.pdf
[5] For more information on the continuing utility of Regulation W and the Fed’s oversight of consumer installment credit, see “Regulation W – Its Role in Economic Stability.” Federal Reserve Bulletin, April, 1949. https://fraser.stlouisfed.org/scribd/?toc_id=39845&filepath=/files/docs/publications/FRB/1940s/frb_041949.pdf&start_page=13
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