Credit Caution?

With U.S. consumer debt at a new high, a top Government economist last week issued a stern call for credit caution. Raymond J. Saulnier, chairman of the President's economic advisory council, told the nation's bankers not to go "overboard" in increasing consumer installment buying. Said Saulnier at the American Bankers Association's annual convention in Miami: "I hope we do not get involved this year or next in a great splurge of consumer expenditure propelled by credit expansion."

In 1955, said Saulnier, a too rapid expansion of credit caused overbuying of autos and other consumer durables, helped bring on the recession of 1957. If consumer installment purchasing increases too rapidly now and after the steel strike, Saulnier fears U.S. consumers will overreach themselves, bring on a decline.

Last week the Federal Reserve Board announced that in September outstanding consumer credit rose to a record high of $48.4 billion. New loans are well ahead of repayments, but this is usual during a period of credit expansion, just as repayments outran new loans during the recession. Of the loan total, $37.5 billion was installment credit, an increase of $485 million over August. While this was the smallest monthly increase since last March, installment credit this year is expected to rise about $6 billion v. a $5.4 billion increase in 1955.

The rise was viewed without alarm by the nation's bankers. The A.B.A. found that the increase has not brought any decided boost in interest rates since June. Even though the prime rate on business loans has been raised to 5%, most banks said that they were keeping installment rates at about the same levels as early in the year. The Chase Manhattan Bank, in its bimonthly letter, also saw no danger in the increase in installment loans. Although the rate of installment credit is growing faster than in 1955, said the Chase Bank, consumer income is now larger. Despite its dollar increase, the rise in installment credit equals only 1.9% of income after taxes, slightly less than the rise in 1955. Despite higher dollar auto sales this year, the net increase on auto credit after repayments on past credit will be only slightly more than half that in 1955, thus leaving room for credit expansion to buy 1960 models.

The increase has spread more evenly throughout the economy than in '55. Many banks report increased loans on farm equipment, mobile homes, boats, and such new lending ideas as the revolving credit plans.

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