Two-Way Spiral

The Administration still talked loudly about fighting inflation, but last week it quietly took a short step to combat deflation. Because retail sales and installment credit have been dropping, the Federal Reserve Board eased up on Regulation W, which restricts installment buying.

Buyers will now have 21 months (instead of 15 to 18) to pay for goods covered by the regulation. Minimum down payments were cut from 20% to 15% of the purchase price, except for automobiles (which stayed at one-third).

Retailers who had seen consumer credit dip during January, for the first time in three years, now thought that the easier credit would pep up sales. Said Bert Baker, Detroit's biggest used-car dealer: "I figure we can sell 20% more cars right off the reel."

Floor & Roof. FRB's action had been taken with President Truman's approval, though it was thoroughly incompatible with his continued demand for anti-inflation controls. At his press conference the President was asked how he could reconcile the conflicting programs. Said he: the nation's economy was spiraling in two directions at once. Farm prices had fallen, but other prices were still going up. What the nation needed, he thought, was a floor under some prices and a roof over others.

Actually, the price cuts far outnumbered the few increases; the overall wholesale price index was dropping. And there were prospects of more price cuts ahead, if manufacturers wanted to keep their enormous output from piling up. In January, the Department of Commerce reported, manufacturers' sales had taken more than seasonal drops, and inventories had jumped by $400 million, about twice the seasonal increase. Unemployment was still on the rise. The Bureau of the Census reported an estimated total of 3,200,000 jobless in February, highest since 1942. But the rate of increase had slowed up. New claims for unemployment compensation have dropped sharply in the last month. And there were still more people working than in any other February in U.S. history.

Optimism & Pessimism. Production had hardly slipped at all. The FRB index was at 191 for January (1935-39 average: 100), down only four points from the postwar peak last fall. Construction in February was 14% ahead of 1948. The steel industry scheduled its eighth straight week of overcapacity output, and the auto industry was heading for the best monthly production since war's end.

The Joint Committee on the Economic Report, in its annual report, predicted another boom year, and thought it "premature to speak of 'recession' and absurd to speak of 'depression' when all the basic industries are continuing to produce at capacity." Not all businessmen were as optimistic. In the economic crosscurrents, no one was certain how great the shakeout in prices and jobs might be. But the next two months, usually marked by a spring pickup, would tell the tale. Businessmen would then know how much of the slide had been seasonal--and how much a permanent drop of the boom.

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