Mainstreet Bank CEOs Report Weaker Non-Urban Economy for April
Survey Results At A Glance:
- Economies of the non-urban, agriculturally dependent portions of the seven-state survey area weakened for the month (CO, IA, KS, MO, NE, SD, WY).
- Hiring in rural areas weakened significantly from March’s already anemic levels in IA, KS & MO, while other four states reported positive growth.
- Bankers foresee more robust rural economy in next six months but warn that oil prices could force some agricultural producers out.
- 92 percent of the bankers say Wal-Mart’s impact on retail establishments in their area has been “negative and significant.”
The Survey of the Mainstreet Economy for April indicates that the economies of the non-urban, agriculturally dependent portions of the seven-state survey area weakened for the month. Furthermore, retail sales and hiring were anemic for much of the survey area.
"Bank presidents and CEOs in the region, which includes the rural and non-urban portions of Colorado, Iowa, Kansas, Missouri, Nebraska, South Dakota and Wyoming, reported declining economic conditions as the overall index decreased to 48.0 from March’s soft 51.6, and below growth-neutral 50.0," said Creighton University Economist Ernie Goss, who along with Bill McQuillan, CEO of City National Bank in Greeley created the economic survey.
Conversely, farm land price growth remained strong with an April reading of 60.4, while farm equipment sales dropped below 50.0 for the first time to 47.8. It is clear that higher farm expenses are cutting into farmers’ willingness to buy new farm equipment.
Hiring in the rural areas weakened significantly to 39.4 from March’s already anemic 48.3. However, job growth was not uniformly weak with Colorado, Wyoming, Nebraska and South Dakota CEOs reporting positive growth in hiring for the month while Iowa, Kansas and Missouri bankers detailed pullbacks in job growth.
It is clear that rural areas with ties to energy production continue to fare very well even as higher energy prices generate significantly higher farm expenses and lower farm income.
As the Mainstreet economy softened, banking conditions remained robust with expansions in loan volume, checking deposits and certificates of deposits.
Looking six months out, bankers see future conditions stronger than current conditions with an April confidence index of 54.3, up from March’s stable 51.6. According to Gary Meyer of Peoples Webster County Bank in Red Cloud, Nebraska, “The biggest impact over the next four to six months will be the price of crude oil if it reaches $90 or more will probably force some agriculture producers out at the end of this year.”
Responses to two specific April survey questions showed that:
- About 44 percent of the CEOs expect ethanol production to have a positive and significant impact on their rural economies for 2006.
- Nearly 92 percent of the bankers say Wal-Mart’s impact on retail establishments in their area has been negative and significant. “In a community 12 miles from a Wal-Mart it is hard to have a retail main steet,” reported Don Eberly, CEO of Stanton National Bank in Stanton, Nebraska.
Each month community bank presidents and CEOs are surveyed regarding current economic conditions in their area and their projected economic outlook six months down the road. Table 1 below lists indices for the past three months, with an index above 50.0 indicating growth and an index below 50.0 signifying weakness. Next month’s survey results will be released Friday May 26th.
Table 1: The Mainstreet Economy
Jan-06 Feb-06 Mar-06 Apr-06
Loan Volume 45.2 73.1 74.2 56.0
Checking deposits 66.1 42.3 45.5 54.0
Certificates of deposit 61.3 44.2 66.7 62.0
Farm land prices 71.0 72.0 64.1 60.4
Farm equipment area sales 54.8 50.0 53.4 47.8
Home sales 43.5 38.5 45.2 44.0
Hiring in the area 55.0 44.0 48.3 39.6
Area economy 53.3 48.1 51.6 48.0
Retail business n.a. 28.8 34.4 37.5
6 months area economy 53.3 51.9 51.6 54.3
Table 2: Impact of ethanol and Wal-Mart on Mainstreet Economy
Positive and significant economic impact
Ethanol production 44.0%
Negative and significant economic impact
Ethanol production 0%