Microsoft Boosts Personal Income

Software Titan's Payout
Yields Biggest Month Gain
Since Figure's 1959 Start

By KEMBA J. DUNHAM
Staff Reporter of THE WALL STREET JOURNAL
February 1, 2005; Page A2

Americans' personal income shot up in December, boosted by a large dividend payment to shareholders of computer-software titan Microsoft Corp. that arrived just in time to stoke holiday spending.

The U.S. Commerce Department said the $32 billion dividend payment caused total personal income to rise 3.7% in December from the previous month -- the largest monthly gain since the government began tracking the data in 1959. Excluding the dividend, personal income rose 0.6% in December, up from a revised 0.4% gain in November.

Even without the dividend, economists said, income growth was strong in December, pushing up retail sales to a hefty 8.7% month-to-month rise -- the strongest holiday sales gains since 1999.

"The consumer ended the year spending like crazy, and with the help of Microsoft, they had the money to spend," Joel Naroff of Naroff Economic Advisors Inc. said in an e-mail to clients.

The Commerce report found personal-consumption expenditures rose 0.8% in December, twice the previous month's pace. Incentive-driven gains in motor-vehicle sales fueled the December rise.

Economists said it's rare for one company's dividend payment to have such a huge impact on national income figures. Michael Moran, an economist at Daiwa Securities America Inc. in New York, says there are several instances of large dividend payments having an impact on personal income in the 1970s, "but the magnitude was nowhere close to what we saw in December," he adds.

The Microsoft payment, which affected 4.6 million shareholders, was nearly as large as the $38 billion federal income-tax rebate paid in the summer of 2001. But unlike the rebate, which many Americans spent, economists said the dividend will have a smaller impact on spending because much of it will be reinvested in stocks or left in brokerage accounts.

Separately, the Commerce Department's Bureau of Economic Analysis said that due to a miscalculation by Canada's statistics agency, over $1 billion of Canadian imports from the U.S. were undercounted in November. That means the recently reported estimate of the U.S. exports and of U.S. gross domestic product may have been understated. The government agency said the correction will have an impact on calculations of the November trade balance and fourth-quarter GDP, but it didn't provide details on the nature or size of the change. On Friday, the BEA said real GDP grew at annual rate of 3.1% in the fourth quarter, weaker than many economists expected.

For the year, personal income rose 5.4% in 2004, up from 3.2% a year earlier. Consumer spending rose 6.1% for the year, up from 5.2% a year earlier. Wages and salaries grew 0.4% in December, up from 0.2% a month earlier.

The inflation news in the report was also encouraging. A price index for personal-consumption expenditures excluding food and energy was flat during December, compared with the prior month. The rate climbed 0.2% in November.

Separately, the Census Bureau said newly constructed single-family homes sold at a seasonally adjusted annual rate of 1.098 million units in December. That was up 0.1% from November and down 2% when compared with December 2003.

The average price of a new home continued to rise. In December, the average price was $276,600 and the median price was $222,000. The median is the midway price, half of all homes sell for more than the median and half sell for less.

--Jeff Bater of Dow Jones Newswires contributed to this article.

EU Shifts Focus On Environment To Growth Plans

Efforts to Ease Regulations To Reinvigorate Economy May Meet Some Resistance

By WILLIAM ECHIKSON
DOW JONES NEWSWIRES
February 2, 2005; Page A13

BRUSSELS -- When European Commission President Jose Manuel Barroso today announces his plans for reinvigorating Europe's struggling economies, he will adopt a more business-friendly tone on environmental policy.

He and the commission are readying a plan to curb regulation of the chemicals industry and arrange a new cost-effectiveness test for any new environmental regulation. They also will attempt to work with the U.S. on an emissions-reduction policy to complement the Kyoto Protocol, the international treaty to curb global-warming that the Bush administration rejected as too harsh on business.

"EU environmental rules are the toughest in the world" says European Union spokesman Gregor Kreuzheuber. "We're against overregulation and hampering business. ...There must be a competitiveness test before any new regulation."

These shifts, part of Mr. Barroso's announced emphasis on jobs and growth to reverse what he calls Europe's "decline," please business and could play a role in a trans-Atlantic rapprochement. But environmentalists already are orchestrating a counterattack, and division within the commission may temper any plans.

"Barroso has started badly," said Claudia Delterro of the World Wildlife Fund in Brussels. "His emphasis on economics means he is forgetting the environment and could threaten big advances."

The EU leader will trumpet "sustainable" growth, saying Europe must build a future based on economic, social and environmental pillars. But Mr. Barroso will stress that growth comes first; without it, the EU can't achieve its social and environmental goals.

A paper written by the commission's Environment Division in advance of Mr. Barroso's speech mentions no new plans to put additional regulatory burdens on business. Instead, it defends environmental policy first and foremost as good business. Officials said Mr. Barroso will cite the economic benefits of cutting energy consumption and emissions.

"Environment policy and eco-innovation can provide economic growth and maintain and create jobs," the document says. "The eco-industries sector employs more than two million people in Europe and continues to grow at around 5% a year."

Putting growth ahead of greenness is visible in a gradual retreat from a plan to regulate chemicals. The commission's environment department proposed legislation two years ago to test 30,000 substances. German Chancellor Gerhard Schroeder, French President Jacques Chirac and United Kingdom Prime Minister Tony Blair last year signed a joint letter deriding the plans as too costly.

"The Schroeder, Chirac and Blair letter on chemicals signaled that the member states already are ready to put growth ahead of environment," said Corrado Clini, director general of the Italian Ministry of Environment. "We are now seeing Brussels adopt the view that companies can never accept the additional costs of too-high environmental targets."

Mr. Barroso has hinted that he plans to revise the legislation. Industry hopes to see the threshold of chemicals to be tested lowered to 4,000 or, at most, 5,000 substances.

Europe will continue to press for adherence to Kyoto, but next month during President Bush's trip to Brussels will discuss the possibility of a joint climate-control initiative focused on investing in pollution reduction in India and China, the two emerging powerhouses where emissions are skyrocketing.

"The first step in going beyond Kyoto will be to join up with the U.S. and get the World Bank and other international institutions to support investments," said Mr. Clini.

Another area where the new anti-environmentalism might disappoint Greens is nuclear power. Mr. Barroso plans to promote clean energy. To a certain extent, that means fuel cells for cars and wind electricity. It also means accepting nuclear power. EU officials expect Germany to backtrack on its plans to phase out its nuclear plants by 2025.

Write to William Echikson at william.echikson@dowjones.com