Consumer borrowing fell again in the U.S. in July as households reduced credit card use for a 23rd consecutive month. Borrowing dropped at an annual rate of $3.6 billion, according to the Federal Reserve's G.19 report. That marked the 17th drop in credit in the past 18 months.

The long stretch of declining borrowing has total consumer credit at an annual level of $2.42 trillion, 6.3% below the peak set in July 2008 of $2.58 trillion. The Fed's credit report covers credit card debt, auto loans and other debt not secured by real estate. It does not cover home mortgages or home equity lines of credit.

Borrowing on credit cards fell by 6.3% in July after a bigger 7.5% June decline. Households since late 2008 are borrowing less and saving more and that has acted as a drag on the overall economy by lowering consumer spending, which accounts for 70% of total economic activity.

Consumers did boost borrowing for auto loans in July but the gain was offset by further reductions in the revolving category, which primarily includes credit cards. Auto loan credit rose 0.6% in July after gains of 3.2% in June and 1.2% in May. The three monthly increases reflected a revival of auto sales this summer after automakers endured slumping sales during the recession.

The latest drop in overall borrowing was a bit higher than economists' expectations and followed a $1.02 billion decline in June, which was revised from an initial estimate that total credit had dropped by $1.3 billion that month. The decline is adding more drag on an economy struggling to mount a sustained rebound.

Analysts said that consumer credit is still constrained in part by tighter lending standards from banks struggling with high loan losses.

The July decrease represented a 1.8% decline in percentage terms and followed a 0.5% drop in June. The only increase in credit that has occurred since January 2009 was a slight 1% rise in January of this year.

Economists expect households will continue to cut back on borrowing as long as incomes and employment don't show significant improvements. The government reported last week that the unemployment rate in August climbed to 9.6% in August, up from 9.5% in July as payroll jobs fell by 54,000. The jobless rate has shown scant improvement after hitting a high for this downturn of 10.1% last October.

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