Consumer credit drops $1.3 billion in June

Consumer credit dropped in June for a fifth straight month as households continued to rein in their use of credit cards and save more. 

Borrowing decreased $1.3 billion, less than economists expected, following a revised $5.3 billion drop in May, the 16th straight drop in credit in 17 months, the Federal Reserve announced Friday. 

The revised drop in May was smaller than the initial $9.2 billion decrease. 

Credit card debt dropped to its lowest level since 2005 as consumers built up their savings, meaning they spent less in recent months, creating a drag on the nation's economic recovery. Consumer spending accounts for 70 percent of the economy. 

The personal savings rate increased to 6.4 percent in June, the highest level in almost a year. In 2007, before the recession, the average savings rate was only 2.1 percent, leaving economists to express concern that Americans aren't spent enough to boost economic growth. 

The Fed's credit report includes auto loans, credit card debt and other revolving debt not secured by real estate. The report doesn't include mortgages or home equity lines of credit.

Credit card use has declined for nearly two years -- 21 straight months -- although auto loans have increased, up  2.4 percent in June after a 1.4 percent increase in May. 

Auto sales continue to make a good showing and estimates are that July also will show increases. 

Consumer spending during the second quarter rose at a 1.6 percent annual rate, slower than the 1.9 percent in the first three months of the year, Commerce Department figures showed on July 30.