July 8 (Bloomberg) -- Borrowing by U.S. consumers dropped in May for the fourth straight month after the unemployment rate reached the highest in more than 25 years and accessing loans remained difficult.

Consumer credit fell $3.23 billion, or 1.54 percent at an annual rate, to $2.52 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $16.5 billion in April, the most on record and more than previously estimated. The series of declines is the longest since 1991.

While consumer spending rose in three of five months through May, the economy lost more jobs than expected in June and wages stagnated. The savings rate in May surged to a 15-year high in part because the weak labor market and wealth destruction related to the housing slump caused Americans to put off purchases and rebuild their nest eggs.

“As households de-leverage, in the long run this will produce a more sustainable consumer sector,” Lindsey Piegza, an economic analyst at FTN Financial in New York, said in a note to clients after the report. “In the short term this means less consumption and a close eye on plans in Washington to support the ensuing recovery.”

Economists had forecast consumer credit would drop $8.8 billion in May, according to the median of 30 responses in a Bloomberg News survey. Projections ranged from a $15 billion drop to a gain of $4.4 billion. The Fed initially reported that consumer credit decreased by $15.7 billion in April.

Credit Cards

Revolving debt, such as credit cards, fell by $2.86 billion in May, according to the Fed’s statistics. Non-revolving debt, including auto loans and mobile-home loans, declined by $367.1 million. The Fed’s report doesn’t cover borrowing secured by real estate.

The savings rate among Americans rose in May to 6.9 percent, the highest since December 1993, the Commerce Department said on June 26. Incomes rose, reflecting tax cuts and Social Security payments from the government’s stimulus plan. Without those benefits, wages and salaries dropped 0.1 percent in May, showing the effects of mounting job losses.

Consumer spending, which accounts for about 70 percent of the economy, rose 0.3 percent for the month after remaining unchanged in April and falling 0.3 percent in March.

Household wealth declined in the first quarter by $1.3 trillion, extending the biggest slump on record, as home and stock prices dropped, according to the Fed’s Flow of Funds report released June 11.

Net Worth

Net worth for households and non-profit groups declined to $50.4 trillion in the January-through-March period from $51.7 trillion in the fourth quarter, that report showed. The Fed began keeping quarterly records in 1952.

Consumer spending on a quarterly basis rose 1.4 percent at an annual rate in the first three months of the year, less than previously estimated, according to revised data from Commerce released June 25. That gain came after a drop of 4.3 percent in the final quarter of 2008 which marked the first back-to-back decreases in excess of 3 percent since record-keeping began.

General Motors Corp., Ford Motor Co. and Chrysler LLC posted U.S. May sales that fell less than analysts’ estimates as shoppers returned to showrooms, while Toyota Motor Corp. and Honda Motor Co. did worse than expected.

Still, U.S. industry sales declined 34 percent from a year earlier, for a 9.9 million annual sales rate, according to Autodata Corp., topping the 9.2 million average estimate of 7 analysts surveyed by Bloomberg.

Credit-Card Losses

U.S. credit-card losses reached 10.44 percent of outstanding loans in June, setting a record and eroding protection for investors in securities backed by payments from cardholders, Fitch Ratings said on July 1.

Charge-offs, the cost of loans that card issuers have given up on collecting, rose 62 percent from year-earlier levels, Fitch said in a statement. While increases may slow in coming months, actual declines aren’t foreseen, Fitch said.

That report added to evidence that more consumers are falling behind on payments as unemployment cuts their income. Moody’s Investors Service said June 24 that write-offs broke 10 percent in May for the first time in more than 20 years of record-keeping. Fitch said the trend is also putting pressure on securities backed by credit-card receivables.

Credit-card companies including Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., American Express Co., and Discover Financial Services have moved to protect investors from losses and thwart ratings cuts on asset-backed debt as delinquencies climb. Steps have included removing poorly performing accounts from the pools and increasing the cash cushion that protects investors from losses.

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

Last Updated: July 8, 2009 16:09 EDT