Consumer credit fell at an annual rate of $3.51 billion in October, the Federal Reserve said Monday. Economists expected a $9.3 billion decline.
Demand for revolving credit, the category that includes credit cards, fell 9.3 percent, while borrowing in the category that includes auto loans rose at an annual rate of 2.6 percent.
Americans are borrowing less as they try to replenish depleted investments. Many are finding it hard to get credit as banks, hit by the worst financial crisis since the 1930s, have tightened lending standards.
The 2.6 percent rise in the category that includes car loans reflected a rebound in auto sales in October after a sharp September drop. That decline followed a surge in August auto sales as consumers rushed to take advantage of the government's Cash for Clunkers incentives before they expired.
Some analysts said the smaller-than-expected decline in borrowing could be a sign that consumers are cautiously moving toward increased spending in some areas, which would be a good sign for the economy going forward.
"Consumers appear to be willing to go out and make big-ticket purchases such as for cars and that is better than things were looking this summer," said David Wyss, chief economist at Standard & Poor's in New York.
While economists have worried for years about the low rate of U.S. savings, the concern is that consumers could derail the recovery if they start saving too much of their incomes. Consumer spending accounts for 70 percent of total economic activity.
Wyss still expects growth in consumer spending to remain modest, meaning that the overall economy will grow at subpar rates in coming quarters. He sees the overall economy, as measured by the gross domestic product, growing at a lackluster 1.9 percent rate in the current quarter, down from the 2.8 percent rate in the July-September period. That's largely because he expects consumer spending to slow from the third-quarter pace.
Consumers have been reluctant to spend in large part because the labor market has been so weak. The government reported Friday that the unemployment rate actually improved slightly in November, dropping to 10 percent, after hitting a 26-year high of 10.2 percent in October.
Analysts, however, cautioned that they expect the jobs recovery to remain lackluster in coming months because the overall economy will be growing at rates that are too modest to support solid growth. Many analysts believe the unemployment rate will resume rising in coming months, hitting a peak of around 10.5 percent, by next summer before starting to improve.
Federal Reserve Chairman Ben Bernanke said Monday that it was still too soon to know whether the economic rebound from the recession is sustainable. He again pledged to hold interest rates at record-low levels for an extended period.
The 1.7 percent fall in overall consumer borrowing left that total at an annual rate of $2.48 trillion in October. The $3.51 billion fall in October followed a decline of $8.77 billion in September.
The 9.3 percent plunge in the credit card category followed drops of 10.5 percent in September, and 10.6 percent in August. In all, credit card borrowing has fallen for a record 13 straight months.
The 2.6 percent rise in the category that includes auto loans followed a 0.6 percent drop in September.
According to sales results released last week, a diverse group of stores including Macy's Inc., Saks Inc., Abercrombie & Fitch Co. and Target Corp. posted sharper-than-expected sales declines in November, translating into a rocky start for the holiday shopping season.
The Fed's credit report excludes home loans and home equity mortgages, only covering borrowing that is not secured by real estate.
The previous record of seven consecutive consumer borrowing declines was set in 1943 and again in 1991.