Loan demand at banks may be peaking, underscoring reports that the nation's economy is slowing.

Business loan activity is likely to continue rising well into next year, but the larger consumer credit sector has probably reached a plateau, even disregarding the big drop in mortgage activity this year.

"If you discount the `frequent-flier effect' from credit cards, you can see the rate of increase in credit for the larger items like appliances, furniture, and autos has hit a plateau," according to Sung Won Sohn, senior economist at Norwest Corp.

"Frequent flier" is his overall term for the promotional efforts by banks that award points or bonuses for expanded use of credit cards, including mileage based on the purchase of airline tickets.

The fierce competition in the card arena has spawned rapid growth in such promotions. "This now includes even $5 or $10 items for which most people would normally pay cash," he said.

The economist believes this factor is large enough to be a reason behind the sluggish growth of M1, the Federal Reserve Board's basic gauge of the nation's money supply, despite the expanding economy.

"Instead of using cash, people are using credit cards more, and that is not reflected in M1," he said.

Meanwhile the economy itself is apparently slowing, according to the latest government data.

Consumer prices rose 0.2% in September, the smallest increase in four months, according to the Labor Department.

Industrial production last month was unchanged, breaking a string of 15 monthly increases, the Fed said. Factories, utilities, and mines also used slightly less capacity.

At the same time, retail sales were strong in September, but sales of winter clothes were weak.

"To me this shows that inflation fears and the market jitters we went through recently were somewhat exaggerated. The markets' blood pressure got too high," the Norwest economist said.

"Today's environment is more rational and realistic for both stocks and bonds," he said. "It's certainly better for bank stocks, especially superregional and money-center banks."

"There is no question the economy is slowing," he said. "On Oct. 28 we will see the third-quarter gross domestic product figure coming out, and it will show the economy growing at only about 2.5%, which is not very much and just what [Fed] Chairman Greenspan wants."

It could even be much lower, perhaps below 2%, according to Philip Braverman, chief economist at DBK Securities Corp., New York.

"The new data are consistent with my view that there really isn't any inflation problem and that the economy is in the process of slowing down," he said Friday.

"Consumer spending, as reflected in retail sales, is not running as fast as the inventory buildup warrants. As a result there is going to have to be some retrenchment," he said.

"I think that has already begun to show up in the industrial production figures, which have leveled out," he said.

Mr. Braverman maintains that the economy would not have grown as fast as it did during the fourth quarter of last year and first half of this year except for the "disaster-related spending" linked to the Midwest flood, Southern California earthquake, and Florida hurricane.

"The belief in this strength in the economy induced business to build inventory in an effort to avoid speculative price increases and shortages that they thought would develop," he said.

"These inventories are beginning to pile up on the shelves. In the second quarter were oil, agricultural products, and nondurables," he said, "but now it appears to be more in the area of manufactured and hard goods."

Mr. Braverman said this will mean retrenchment ahead in both orders and production. He expects continued economic expansion, but at a very subdued rate of 2% or less.

If so, "I think that's probably it for the Fed," he said. "We may or may not get one more firming, but we are at the tether end of the credit tightening we have seen."

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