For the first time since Harry S. Truman was in the White House, Americans are paying back their debts, a phenomenon that just might help keep interest rates low as the Treasury sells a record $2 trillion of bonds and rising unemployment increases U.S. savings.

While the proportion of consumers without jobs rose to 9.5 percent last month, household borrowing fell to 128 percent of the average family's after-tax income in the first quarter from a record 133 percent in the same period a year earlier, according to data compiled by Bloomberg.

The total debt of individuals, nonfinancial companies and federal, state and local governments grew at a 4.3 percent pace at the start of the year, down from a peak of 9.9 percent in the fourth quarter of 2005, Goldman Sachs Group Inc. estimated.

"We've never seen a pullback like this," Goldman's chief U.S. economist, Jan Hatzius, said from his New York office. "We are seeing an adjustment, and it's very painful and there's a lot of collateral damage."

The 0.7 percent contraction in debt among households and nonfinancial companies from January through March was the first since 1952, when Truman was president and the government began keeping the records, Hatzius said.

SLOWS GROWTH

Consumer credit fell at an annual 1.6 percent rate in May to $2.52 trillion, according to the Federal Reserve. Reduced spending may slow the recovery from the first global recession since World War II because U.S. households generate 17 percent of global gross domestic product, according to Sara Johnson, a managing director at IHS Global Insight in Lexington, Mass.

At the same time, rising unemployment helped lift the U.S. savings rate to 6.9 percent in May, the highest since December 1993. That's keeping Treasury yields in check because banks are pumping deposits into the bond market instead of making new loans.

Bank holdings of Treasuries and debt of mortgage companies Fannie Mae of Washington and McLean, Virginia-based Freddie Mac totaled $1.33 trillion in the week ended July 8, up 16 percent from a year earlier, according to the Fed.

"There has been a big change in the private sector, and that's fine," Fed Chairman Ben S. Bernanke said last week in semi-annual testimony before the House Financial Services Committee "It creates problems in the macro economy, because without consumer spending, the economy doesn't grow as fast."

People "need to get their balance sheets in order and their budgets in order," Bernanke said.

HOG SALES DECLINE

While U.S. savings rise, companies are enduring increasing levels of pain.

Consumers "understand what they are spending more than ever," Mike Duke, chief executive officer of Wal-Mart Stores Inc., told employees and suppliers July 16 in Bentonville, Ark., where the world's largest retailer is based. "This has brought on a new normal of how consumers view consuming, shopping."

Frugal motorcycle shoppers are avoiding taking on debt to purchase bikes such as the Road King touring model, which costs as much as $40,000 when customized, from Harley-Davidson Inc.

The biggest U.S. motorcycle maker's finance arm said July 16 that loans fell 33 percent in the second quarter to $700 million.

"Sales of Harley-Davidson motorcycles at retail in the U.S. declined significantly in the second quarter, with the backdrop of unemployment at 25-year highs and consumer confidence at near-record lows," the Milwaukee-based company's CEO, Keith Wandell, who rides a Road King, said on a conference call.

Consumers' debt pullback is only now getting under way, said Simon Johnson, a professor at the Massachusetts Institute of Technology in Cambridge and former chief economist at the Washington-based IMF.

The rise in savings so far is largely a product of mortgages being extinguished by home foreclosures, government tax cuts and transfer payments under the stimulus package, he said.

"As there's an adjustment to higher savings, then there is a potential paradox of thrift," Johnson said, referring to economist John Maynard Keynes' theory that increased saving is good for individuals but bad for society as a whole because it reduces demand.

"To some extent, the government can offset that" with fiscal stimulus, he said. "At some point you have to worry about the budget deficit."

"We definitely have a paradox of thrift going on," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. "If everyone rushes for the exit at the same time, it's hard to get out. If everyone is de-leveraging at the same time, it's hard to get the economy going."