updated 7/8/2005 5:11:22 PM ET 2005-07-08T21:11:22

Consumers, showing some caution about piling up new debt, reduced their borrowing in May for the first time in 18 months, the Federal Reserve reported Friday.

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They reduced their borrowing by $3 billion in May from the previous month, a drop of 1.7 percent on an annualized basis. That marked the first decline since November 2003.

The decline in new debt in May reflected a pullback in demand for nonrevolving credit, which includes loans for cars, vacation and education. That type of borrowing fell by $3.7 billion in May from the previous month, or at a 3.4 percent annual rate.

“Consumers may be playing a more prudent role in their finances and paying off accumulated debt,” said Richard Yamarone, economist at Argus Research Corp., of the drop in overall borrowing in May.

“The big driver was the poor automotive sales activity that we had in May and the weak borrowing for automotive loans.”

In April, demand for nonrevolving credit rose at a 1.5 percent pace, or by $1.7 billion.

The Fed’s report does not include home mortgages or popular home-equity loans.

Demand for revolving credit — mostly credit cards — rose in May, after falling in both March and April.

Revolving credit increased at a 1.1 percent annual rate in May, or by $724.9 million.

Yamarone also believed that high energy prices along with a gradually improving — as opposed to gangbusters — job market may be making people think twice about adding to their debt burdens.

In April, overall consumer borrowing rose at a pace of just 0.7 percent, or by $1.2 billion, the smallest increase in five months.

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