- The Washington Times - Monday, January 31, 2005

A new high dividend payment by Microsoft Corp. lifted personal incomes by a record 3.7 percent to more than $10 trillion last month and gave a boost to year-end spending and savings, the Commerce Department reported yesterday.

The unprecedented Microsoft payout illustrates how times have changed. The one-time leader of the United States’ information-technology revolution has been transformed by changes in the economy, the stock market and tax laws into its biggest dividend-paying corporation, and now acts much like an “old economy” firm.

For millions of Microsoft shareholders, the $32.6 billion dividend windfall paid out on Dec. 2 rivaled the $38 billion from President Bush’s 2001 tax rebates and is emblematic of how stock gains are contributing a growing share of income while wages and salaries are shrinking.

The Microsoft payout helped drive up dividend income by 12.3 percent to a record $441 billion last year. Wages and salaries, by contrast, grew by 4.7 percent to $5.343 trillion. Without the payout, the December personal-income figure would have been 0.6 percent.

Wages last year fell to 55 percent of personal income, down from 60 percent in 1980 and 57 percent in 1990, according to the department.

Tax cuts for dividends and capital gains accelerated the trend. But not all Americans are enjoying the increased income reaped from dividends, stock options, restricted stock grants, and other stock-related compensation, the figures show.

Only the half of Americans who own stocks, who are mostly upper-income and middle-aged, are profiting from the increased stock compensation.

One result is that virtually all discretionary income has come to be concentrated in the less than half of American households earning more than $50,000 a year, according to the Conference Board, a business research group.

A study by the board found that 82 percent of all discretionary income is held by families with incomes of $100,000 or more per year, and 97 percent is held by households earning $50,000 or more per year.

The wealthier households are concentrated in the Northeast and overwhelmingly are headed by people between 35 and 65 years of age, according to Lynn Franco, a Conference Board economist.

“Rising numbers of affluent households who control sizable amounts of discretionary income signal a favorable outlook for the luxury, travel and entertainment markets, as well as companies in the furnishings and housing sectors,” she said.

Retailers from Wal-Mart to Tiffany’s have detected the trend. While sales at Wal-Mart, whose customers are largely low-income, have flagged, sales at luxury retailers have been soaring.

During December, the Microsoft dividend helped push up consumer spending nationwide by a robust 0.8 percent. But it also apparently caused a spike in the personal savings rate to 3.4 percent, as much of the stock is in investment or retirement accounts where the money may not immediately be accessible.

“Most of it will have been reinvested in stocks or left in brokerage accounts,” said Joshua Shapiro, chief U.S. economist at MFR Inc.

While higher-income consumers are able to save much of their stock income, the Conference Board found that a shrinking share of the population has enough income to spend on anything other than necessities like housing, food and health care. About 49 percent of the population has virtually no discretionary income, the board said.

The crunch is centered on low- and middle-income households that rely on wages for most of their income. Their incomes largely have stagnated since 2000, as growth in wages has slowed while inflation and the cost of necessities has risen.

About 80 percent of workers receive hourly wages for most of their incomes. Last year, their average wage growth fell to a record low of 2.1 percent, according to the Labor Department, and was outpaced by inflation growth of 3.3 percent.

Cutting into the wages and spending power of wage-dependent consumers was a 7 percent surge in the cost of benefits like health insurance and pensions, as well as a 40 percent surge in oil and related energy costs.

“The benefits of the growing economy are still failing to reach many working families,” said Jared Bernstein, senior economist with the Economic Policy Institute, a labor research group.

While many economists expect wage growth to pick up this year with job growth, they also expect the cost of energy, medical care and other staples to keep cutting into the purchasing power of Americans.

In a related development, the Commerce Department yesterday said its estimate of the gross domestic product in the fourth quarter, released on Friday, might have overestimated the depressing effect of trade on economic growth.

The department on Friday said growth fell to a 3.1 percent rate, but revised figures on exports to Canada most likely will prompt the department to revise that figure upward next month, possibly to 3.6 percent, a spokesman said.

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