Consumer borrowing declines at 3.7% rate

Consumer borrowing fell in August for the first time in more than a decade as households, battered by rising job layoffs and the decaying economy, cut back sharply on their use of credit.

The Federal Reserve said Tuesday that consumer borrowing fell at an annual rate of 3.7% in August, before the financial crisis became acute in September, forcing the government to approve a $700-billion bailout of the financial industry.

August’s decline in consumer credit marked the first time that total borrowing had fallen since a 4.3% rate of decline in January 1998.

The weakness reflected a decline of 5.4% at an annual rate in the category that includes auto loans and a 0.8% rate of decline in the category that includes credit cards.

The 3.7% rate of decline for overall borrowing followed a 2.4% rate of increase in borrowing in July.

Consumer borrowing, which the Fed defines as all loans not secured by real estate, totaled $2.58 trillion at an annual rate in August, down by $7.88 billion from the July level.

That was a much weaker performance than the $5.25-billion increase in borrowing that economists had been expecting.

Economists are worried that consumer spending will decline in the July-September quarter. That could set the stage for the economy to slip into a recession.