June 5 (Bloomberg) -- Borrowing by U.S. consumers had the second-biggest drop on record in April as the jobless rate reached its highest in a quarter century and accessing loans remained difficult.

Consumer credit fell $15.7 billion, or 7.4 percent at an annual rate, to $2.52 trillion, according to a Federal Reserve report released today in Washington. Credit decreased by a record $16.6 billion in March, more than previously estimated.

Spending by consumers declined for a second consecutive month in April as the unemployment rate increased to 8.9 percent, a level not seen since 1983. The number of people collecting jobless benefits broke records for 17 weeks before the end of May, causing Americans to put off purchases out of fear they might lose their jobs or take longer to find new ones.

“Consumers have retrenched in the face of rising unemployment and are paying down their debts and increasing their savings,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Those consumers who do want to spend are having their credit limits cut left and right by banks that are increasing their credit-risk checks.”

Economists had forecast consumer credit would drop $6 billion in April, according to the median of 29 responses in a Bloomberg News survey. Projections ranged from a $9 billion drop to a gain of $1.5 billion. The Fed initially reported that consumer credit decreased by $11.1 billion in March.

Savings Rose

Revolving debt, such as credit cards, decreased by $8.59 billion in April, according to the Fed’s statistics. Non- revolving debt, including auto loans and mobile home loans, decreased by $7.09 billion. The report doesn’t cover borrowing secured by real estate.

The savings rate among Americans rose in April to 5.7 percent, the highest in more than 14 years, the Commerce Department said on June 1. Consumer spending, which accounts for about 70 percent of the economy, was down 0.1 percent for the month after falling 0.3 percent in March.

The Labor Department said today that the economy lost another 345,000 jobs in May, boosting total losses during the downturn to 6 million, and the unemployment rate rose to a 25- year high of 9.4 percent. Still, the May job loss was the least in eight months and smaller than forecast, reinforcing recent signs that the recession is starting to abate.

Fed Measure

American Express Co., the largest U.S. credit-card company by purchases, on May 18 announced plans to cut about 6 percent of its workforce or 4,000 positions as cardholders squeezed by rising unemployment fail to pay debts. Also, industry statistics released May 1 showed auto sales plunged 34 percent in April, the 18th straight monthly drop, as Chrysler LLC’s slide toward bankruptcy helped shrink the industry more than expected.

Department stores Macy’s Inc. and Dillard’s Inc. and luxury chain Saks Inc. yesterday reported steeper-than-forecast sales declines for May.

Meanwhile, a Fed program aimed at supporting financing of loans to credit-card borrowers, students, car buyers and small businesses is gaining momentum after a “slow start,” New York Fed President William Dudley said yesterday. Dudley cited the fact interest-rate spreads on included securities in the Fed’s Term Asset-Backed Securities Loan Facility are narrowing.

As spreads narrow, potential returns will diminish, limiting the program’s attractiveness to hedge funds and others seeking high returns. The Fed is working to increase participation by bringing in investors not permitted to use leverage, such as pension funds and insurers, Dudley said.

“The broader the investor base, the greater the demand for the securities, the lower the yield levels, and the greater the improvement in credit availability,” he said.

Lending Terms

The Fed’s quarterly survey of senior loan officers released on May 4 showed a larger share of banks reported tightening terms on residential mortgages compared with the previous survey, even as more domestic respondents saw increased demand for prime mortgages.

That survey indicated most banks anticipate loan delinquencies and losses to increase this year, and that more banks also made it tougher for consumers to get credit-card loans in the past three months.

The average consumer credit rate for a 60-month car loan was 7.52 percent as of two days ago, little changed from the end of April and compared with 6.53 percent on April 30, 2008, according to data from Bankrate.com. For personal credit union loans, the rate two days ago was 12.5 percent, up from 12.42 percent on April 30 and 12.25 percent a year before that.

The year-over-year change in consumer credit issued throughout the economy was negative in March for the first time since September 1992.

To contact the reporter on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net

Last Updated: June 5, 2009 15:38 EDT