Microsoft Dividend Boosts Incomes

Personal income, boosted by a large dividend payment from computer software giant Microsoft Corp., shot up by a record 3.7 percent in December. That helped to boost consumer spending during the all-important holiday season by 0.8 percent.

The Commerce Department reported Monday that the income gain would have been a smaller 0.6 percent in December without the one-time $3 per share dividend payment Microsoft made on Dec. 2. Even that reduced figure would have been an improvement over the 0.4 percent rise in personal incomes in November.

The government also reported that sales of new single-family homes edged up a slight 0.1 percent last month after a huge drop of 13.1 percent in November. For all of 2004, new home sales surged by 8.9 percent to an all-time high of 1.183 million units.

It marked the fourth straight year that sales of new homes have set a record as the nation's housing industry continues to enjoy some of the lowest mortgage rates of the past four decades.

While it is highly unusual for a dividend payment from a single company to have such a major impact on incomes, Microsoft is one of the most widely held stocks in America. The size of the payment — $32 billion — rivaled the $38 billion the government paid out in federal income tax rebates in the summer of 2001.

However, analysts said they did not believe the Microsoft payment would have the same impact as the 2001 tax rebates because much of the dividend will simply be used by stockholders to buy more shares of Microsoft.

"Only those holding stock certificates or retirees who rely on dividends for monthly income would receive the dividend directly," said Ellen Beeson, an economist at Bank of Tokyo-Mitsubishi in New York. "Nearly all other investors have an automatic reinvestment of dividends tied to their brokerage accounts."

Microsoft co-founder and chairman Bill Gates, who earned $3.29 billion from the dividend payment, has said he will donate his proceeds to the Bill & Melinda Gates Foundation.

Consumer spending in December did rise at twice the rate of a 0.4 percent increase in November. It was the best showing since a similar 0.8 percent increase in spending in October. After adjusting for inflation, consumer spending was up 0.9 percent last month, the best showing in five months.

The heavy demand for homes last year helped to push the median price — half sold for more and half for less — to $222,000 in December, up 1.4 percent from November and 13.3 percent higher than a $196,000 median sales price in December 2003.

For December, the Commerce Department said that new home sales were up 55.5 percent in the Midwest to an annual rate of 241,000 units. Sales were also up 6.3 percent in the West to an annual rate of 320,000 units. Sales fell 16.3 percent in the South to an annual rate of 467,000 units and were down 15.7 percent in the Northeast to an annual rate of 70,000 units.

For all of 2004, personal incomes increased by 5.4 percent, the largest annual advance since an 8 percent jump in 2000, the last full year of the decade-long economic expansion. Since the 2001 recession and an extended jobless recovery, personal incomes have grown at much smaller rates of 3.5 percent in 2001, 1.8 percent in 2002 and 3.2 percent in 2003.

Consumer spending rose by 6.1 percent last year, the best showing since a 7.3 percent advance in 2000. Spending had been up 5.2 percent last year.

Economists closely watch consumer spending since it accounts for two-thirds of total economic activity.

Federal Reserve policy-makers will hold their first meeting of 2005 on Tuesday and Wednesday and it is widely expected they will boost rates by another quarter-point as they continue a gradual credit tightening campaign.

After-tax incomes rose by 4 percent in December, also helped by the Microsoft dividend payment. The amount of income that Americans had left over after taxes climbed by just 0.4 percent in November.

The big jump in after-tax incomes helped boost the personal savings rate to 3.4 percent in December, compared to 0.3 percent in November.

The savings rate, the amount left over after spending is taken into account, for the whole year, totaled just 1 percent. That was the smallest annual rate since the Depression year of 1933 when personal savings dipped into negative territory of minus 1.5 percent.

By Martin Crutsinger