Use of Credit Drops for 3rd Straight Month : Economy: In a separate report, the nation’s manufacturing companies reported higher second-quarter profit.

Consumers sharply cut their use of credit for a third straight month in July, the Federal Reserve Board said Monday, reflecting worry about their jobs and incomes.

The Commerce Department also reported that the nation’s manufacturing companies chalked up more profit in the second quarter than in the first, but their profit margins still lagged behind a year ago.

Installment credit--the type paid off in monthly lumps--shrank by $838 million in July after plunging by $1.70 billion and $1.33 billion in May.

“Consumers are running scared,” said David Wyss, an economist with DRI/McGraw Hill Inc. of Lexington, Mass.

“They’re worried their incomes are not rising and they’re worried about being laid off,” Wyss said. “They’re being cautious and timid and that’s not untypical at this stage of the business cycle.”

The falloff in credit use was again dramatic in new-car loans, which tumbled by $880 million after earlier steep declines of $1.99 billion in June and $3.25 billion in May.

Auto credit has fallen in every month this year as consumers paid off more on their existing loans than they took out in new ones.

Kathryn Kobe, an economist with Washington-based forecaster Joel Popkin & Co., noted that the steady decline in auto credit was occurring despite a slight pickup in new-car sales from depressed levels in January when the economy still was deep in recession.

Some of the increase in car sales was accounted for by renewals of rental fleets and by corporate purchases that do not show up in the Federal Reserve Board’s monthly report, which measures individuals’ use of credit buying.

A moderate recovery in the nation’s economy is thought to be under way, but the rebound is not being fueled by consumer buying activity.

In the manufacturers’ profit report, the Commerce Department said the companies’ after-tax profit increased to a seasonally adjusted 3.1 cents per dollar of sales in the second quarter, up from 2.8 cents in the first quarter of the year.

Profit was down from 4.7 cents per dollar of sales in the second quarter of 1990.

Manufacturers’ sales in the second quarter were up to $683.14 billion from $670.44 billion in the first quarter but down from $692.56 billion in the second quarter last year.