Mainstreet Economy

Mainstreet Economy

Rural Mainstreet Economy Slows:
Some Bankers Reported Negative Impacts from Bird Flu


May Survey Results at a Glance:

• The Rural Mainstreet Index improved, but remained below growth neutral for May signaling slight pullbacks in economic activity.      
• Farmland prices declined for the 18th straight month, but with wide variations across the region
• Almost one in five bankers reported negative fallout from the avian flu outbreak.
• Agriculture equipment-sales index dropped to a record low level. 
• Bankers identified rising regulatory costs as the top economic challenge to bank profitability for the next five years.
For Immediate Release:  May 21, 2015

OMAHA, Neb. – The Creighton University Rural Mainstreet Index for May rose slightly from April’s weak reading, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.   


Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, climbed to 49.0 from 46.0 in April. 


“The stronger U.S. dollar continues to be a drag on the Rural Mainstreet economy. The strong U.S. dollar has made U.S. goods, especially agriculture and energy products, less competitively priced abroad. This has dampened farm income and the Rural Mainstreet economy," said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.


Farming and ranching: The farmland and ranchland-price index for May climbed to 39.7 from April’s 33.4. “However, this is the 18th straight month the index has moved below growth neutral. But according to banker comments, there is great deal of variation across the region with many areas continuing to experience strong demand for farmland with little deterioration in farmland prices,” said Goss. 


Jeff Bonnett, president of Havana National Bank in Havana, Ill., said, “Although it is very true that commodity prices are too low to support current year farm operations, the idea of plummeting farmland values has no merit in our area. We have a recent example of a 240 acre irrigated piece in the southern part of our county that sold for $9,450 an acre.”


The May farm equipment-sales index fell to a record low of 12.5 from 15.6 in April. The index has been below growth neutral for 22 straight months. “With farm income expected to decline for a second straight year, farmers remain very cautious regarding the purchase of agricultural equipment,” said Goss.


Banking: The May loan-volume index soared to 79.6 from 69.0 in April. The checking-deposit index sank to 43.8 from April’s 50.1, while the index for certificates of deposit and other savings instruments increased to 39.7 from April’s 38.0.


This month, bank CEOs were asked to identify the greatest economic challenge to banking operations over the next five years. Approximately, 45.8 percent of the bank CEOs named rising regulatory costs as the top threat to their bank’s profitability. More than one in five, or 20.8 percent, indicated growing competition from Farm Credit and credit unions represented the greatest threat over the next five years. 


Approximately 10.4 percent and 8.3 percent identified slow growth and farm foreclosures, respectively, as the number one challenge to their bank’s profitability over the next five years. The remaining 14.9 percent named other factors challenging their operating income over the next five years.


Hiring: Despite weaker crop prices and pullbacks from businesses with close ties to agriculture and energy, Rural Mainstreet businesses continue to add workers to their payrolls. The May hiring index rocketed to 61.5 from April’s much lower, but solid 54.2. “Rural Mainstreet businesses continue to hire additional workers. While the rate of new hiring is healthier in urban areas of each state, Rural Mainstreet communities are growing jobs at a solid, but slower pace,” said Goss.


Confidence: The confidence index, which reflects expectations for the economy six months out, sank to 41.5 from 47.0 in April. “The impact of the avian flu had a clear and negative impact on the outlook of bankers in the region,” said Goss.


“We asked bankers about the fallout from the avian flu outbreak. Almost one in five of the bankers, or 18.7 percent, reported negative impacts from the outbreak. However, almost one-half, or 48.9, expect negative impacts from the bird flu if it should spread to their area,” said Goss.


Home and retail sales: The May home-sales index jumped to 66.0 from April’s 58.2. The May retail-sales index increased to a weak 49.0 from 44.0 in April. “We have yet to measure any upturn in retail sales stemming from the downturn in fuel prices,” said Goss.