Dividend Income Helps Chase Away Those Falling Rate Blues

Whatever the benefits of falling interest rates for borrowers, there's no denying that the household sector as a whole, which saves more than it borrows, has been taking a beating. Indeed, net interest income in the second quarter was down $45 billion, or nearly 14%, from its peak in late 1990.

The good news, says economist Gary E. Schlossberg of Wells Fargo Bank, is that households' dividend income is finally taking up the slack, as a result of rising dividend hikes by corporations and growing household equity investments. Since the first quarter of 1992, he notes, personal dividend income has risen 12.5%, or $16 billion--enough of an upswing in recent quarters to more than offset the drop in net interest income.

Not everyone is benefiting from this development. Schlossberg notes that older households, particularly retirees, remain highly dependent on interest income and tend to regard equities with a wary eye. "It's the baby boomers who are probably benefiting most," he says. "They're more heavily invested in stocks, and they're now getting a double payoff from falling rates on their mortgages and rising dividend income."

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