Falling Interest Income Sets A Record Of Sorts

Although falling interest rates have helped borrowers in recent years, they have also cut sharply into interest income received by households. Indeed, while many economists underscore the stimulative effects of lower rates on consumer outlays, others claim that the inhibiting impact of declining interest income is more important.

Economist Tony Riley of A. Gary Shilling & Co. points to a new development that bolsters the latter argument. Historically, the cash interest income received by consumers (excluding so-called "imputed interest income," such as interest earned on life insurance and pension plans) has always exceeded the interest paid by consumers on their outstanding debt. Indeed, in early 1989 the difference came to a healthy $82 billion.

What is new, says Riley, is that such interest income has now fallen so sharply that by the fourth quarter of last year it was no larger than interest paid out by households. "If recent trends continue," he says, "consumers in 1993 will for the first time be paying more in interest than they currently receive, and that can't be good for consumption."

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