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Mainstreet Economy

• Bank CEOs report first decline in Rural Mainstreet Index since February of this year.
• Farm-equipment sales index and farmland-price index increase for the month.
• Only 2.0 percent of bankers support a public health insurance program.
• Over one-third of bank CEOs expect a Federal Reserve rate hike by the end of 2009.

AFTER THREE MONTHLY INCREASES, RURAL MAINSTREET INDEX DECLINES: BANKERS QUESTION GOVERNMENT-PROVIDED HEALTH INSURANCE

For Immediate Release: June 18, 2009 

OMAHA, Neb. – After three consecutive monthly increases, the overall index for the Rural Mainstreet economy declined and continues to indicate significant economic weakness, according to the June survey of bank CEOs in an 11-state region.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100, slipped to a weak 34.0 from 36.2 in May, but was up significantly from February’s record low of 16.9.  A reading of 50.0 is considered growth neutral.

“The RMI has remained below growth neutral for 16 consecutive months. Even though the RMI was down for June, the index has been trending upward over the past few months, indicating the severity of the economic downturn is lessening. Weaker farm income, closures and cutbacks for rural manufacturers and a weak U.S. economy continue to negatively affect the Rural Mainstreet economy,” said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey in 2005.
 
The weak global economy has affected the farm sector significantly.  With net farm income under pressure, both land prices and sales of farm equipment have weakened over the past several months.  The farmland-price index moved below growth neutral for the eighth straight month and the farm-equipment sales index dropped below growth neutral for the ninth consecutive month.  “After peaking at 81.0 in January 2008, the farmland-price index declined to a record low 33.1 in March of this year. It has since rebounded to this month’s reading of 45.7 from May’s 39.2. The farm-equipment sales index climbed to 33.3 from May’s record low 28.3,” said Goss.

Weather always plays an important role in the Rural Mainstreet economy.  This month bankers were asked to compare this year’s planting conditions to this time last year. More than three-fourths of the bankers, or 76.0 percent, indicated that crop planting was on schedule, or ahead of schedule compared to 2008.  Less than one-fourth, or 24.0 percent, indicated that planting was behind last year’s schedule.

Despite the current negative economic circumstances, the confidence index, which tracks expectations for the Rural Mainstreet economy six months out, was above growth neutral for a second straight month.  The June reading slipped to 52.2 from May’s 56.0.  “Despite the decline in the confidence index, bankers in our survey clearly think that the worst of the economic downturn is behind us,” said Goss.  

This month bank CEOs also were asked whether they supported a government program providing health insurance competing with private insurers.  Only 2.0 percent of the bankers support such a program while 68.6 percent are firmly opposed to a government run program.  The remaining 29.4 percent indicated that too little was known about the public health insurance program.

Bradley Robson, CEO of First State Bank in Belmond, Iowa, summed up the expectations of many when he said, “Why would we consider any model that has the government running health care over the long run.  One only has to look at Amtrak to see how expensive such an undertaking will be to the taxpayer.” However, Jim Stanosheck, CEO of State Bank of Odell in Odell, Neb., said, “If our goal is to make health insurance available to all Americans, a government operated program must be included.” 

Hiring in the rural areas has been especially weak over the past year.  The new-hiring index for June inched lower to a frail 29.0 from May’s 29.3, but was well above February’s record low of 14.7. “This is the 18th consecutive month that the index has been below growth neutral, due in part to the national and global recession and weakening farm and energy commodity prices.  Over the past 12 months, rural areas of the region have lost more than 4.7 percent of their jobs while urban areas in the region have seen more than 3.1 percent of their jobs disappear over the past year,” said Goss.  

Like much of the nation, retail sales were less than healthy for the month with a June retail-sales index of 33.7, down from 34.9 in May, but well up from February’s record low 18.4.  

The Rural Mainstreet housing market appears to be stabilizing, albeit at a somewhat weak level.  The June home sales index softened to 45.9 from May’s 48.7.  It appears that the upturn in the Rural Mainstreet housing market is following the urban pattern – improving, but still weak.  However, the 2009 stimulus program is having a positive impact on the housing market according to some.  For example, McQuillan said the $8,000 special tax credit for first time homebuyers is having a positive effect in his region.

Despite the national financial crisis, community bankers on Rural Mainstreet reported healthy banking numbers for the month.  The loan-volume index expanded to 56.1 from May’s 46.7 indicating little concern in terms of credit availability.  According to McQuillan, “We certainly have plenty of dollars to lend to qualified buyers who are seeking financing.”

For June checking deposits declined to 54.2 from May’s 68.0. The index for certificates of deposit and other savings instruments dipped to a still healthy 54.1 from May’s 59.3.  

In June’s survey, bankers were asked whether they thought the Federal Reserve would raise short-term interest rates.  Fully 34.0 percent of the banks CEOs expect the Fed to raise short-term interest rates by the end of 2009.  The remaining 66.0 percent expect no rate change in 2009. 

Each month, community bank presidents and CEOs in nonurban, agriculturally and resource-dependent portions of an 11-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road.  Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

This survey represents an early snapshot of the economy of the rural, agriculturally and energy dependent portions of the nation. The Rural Mainstreet Index is a unique index covering 11 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.