CONSUMER CREDIT : Personal Debt Drops for 6th Straight Month : Economy: Slow income growth makes drop in spending understandable, but it slows recovery.

WASHINGTON — Consumers reduced their outstanding debt in July for the sixth consecutive month, the government said Tuesday in a report indicating that Americans improved their balance sheets but remained cautious about spending.

The $1.12-billion decline translated into a 1.9% reduction, calculated annually, and followed a revised 0.5% decrease, originally reported as a 1.7% drop, the Federal Reserve said.

It was the 12th decline in 15 months and illustrated Americans’ determination to reduce their debt loads in the face of sluggish income growth and a stagnant job market.

While economists view the process as necessary to lay the groundwork for a healthier economy, it is acting as a brake on spending and holding back the fledgling recovery. Consumer spending accounts for about two-thirds of the nation’s economic activity.

President Bush, in a campaign appearance before the international Jewish service organization B’nai B’rith, acknowledged that consumers are cautious, but he predicted a rebound.

“I have been concerned about the confidence factor because you’ve had so much gloom and doom about the economy that people are scared,” he said. “And, yes, things have been slow, but I am not pessimistic long run.”

However, private economists see no signs that consumers are prepared to start borrowing and spending again in the amounts needed to lift the economy from stagnation.

“It’s a slow, arduous effort to restore balance sheets. It’s gone on and on so far with no indication that it’s ending,” said economist Robert G. Dederick of Northern Trust Co. in Chicago. “In the long run, people will be well positioned, but the long run can be long indeed in coming.”

The one bright spot in Tuesday’s report was an increase in automobile loans at a 2.4% annual rate. It was the first increase in that category since March and followed a drop of 12% at an annual rate in June.

Revolving loans, which include credit cards, fell at a 0.7% rate in July. Other loans were down at an 8.3% rate. That category includes loans for mobile homes, education, boats, trailers and vacations.

The various changes left total consumer debt not secured by real estate at $721.5 billion, the lowest total since April, 1990.