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The Mainstreet Bank CEOs Report Stable Non-Urban Economy but with Potential Drought Fallout

The Mainstreet Bank CEOs Report Stable Non-Urban Economy but with Potential Drought Fallout

The third survey of the "mainstreet" economy, completed in March, indicates that the non-urban, agriculturally dependent portions of the seven-state survey area were virtually unchanged for the month. However, continuing weak retail sales and renewed concerns of the impact of drought conditions on the economy continue to raise concerns.

"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 stable economic conditions as the overall index rose to 51.6, slightly above growth neutral 50.0 from February’s weaker 48.1," Creighton University economist Ernie Goss said today.

However, almost 80 percent of the CEOs expect drought conditions to have severe to moderate negative impacts on the non-urban portions of the economy. As reported by Craig Brewster, president of Butte State Bank in Butte, Neb., “My biggest concern for our area is weather conditions. In a county where crop production is almost all dryland, weather conditions will play a major role on how people spend their money.” In Frankfort, Kan., Joe Kennedy, CEO of the First National Bank said, “The local economy is good, but we need rain.”

Hiring in the seven-state region was weak for March with an index of 48.3, up slightly from 44.0 in February. Job gains were weak in Iowa and Missouri, stable in Kansas, and strong in Colorado, Nebraska, South Dakota and Wyoming. Job growth was especially strong for areas with ties to mining and energy.

Across the region, bankers are enthusiastic about the prospects of renewable energy production. For example, Kurt Henstorf, president of the First National Bank of Shenandoah, Iowa, said, “We have a new 50 million gallon ethanol plant under construction, a Canadian company that just chose our community for a new ag implement manufacturing plant, and a new Super Wal-Mart location just announced for our community. The construction crews for these three projects alone will enhance our local economy for the next year or more.”

Bank presidents and CEOs in the region expect the mainstreet economy to continue to grow, albeit at a slow pace, over the next six months, as the confidence index declined to a tepid 51.6 from February’s 51.9, and down slightly from January’s 53.3.

“The bankers in our survey reported weak retail sales with an index of 34.4, but up from February’s 28.8. As in January and February, CEOs reported vigorous growth in farmland prices with an index of 64.1, down from February’s 72.0 and January’s 71.0," said Goss.

As in January, the mainstreet economy relative to the urban economy was strongest in Colorado, Nebraska, South Dakota and Wyoming. On the other hand, mainstreet businesses in Iowa, Kansas and Missouri were experiencing somewhat weaker economic growth than their urban counterparts. Each month, community bank presidents and CEOs are surveyed regarding current economic conditions in their area and six months down the road.

In table 1 below are listed indices for the past three months, with an index above 50.0 indicating growth and an index below 50.0 signifying weakness. Survey results will be released the last Wednesday of each month. The release of April results is scheduled for April 21 at 5 p.m. (CST).

Table 1

                                        The Mainstreet Economy

                                                                                           Jan-06 Feb-06 Mar-06

Loan Volume                                                                          45.2    73.1     74.2
Checking deposits                                                                   66.1    42.3     45.5
Certificate of deposits                                                              61.3    44.2     66.7
Farm land prices                                                                     71.0    72.0     64.1
Farm equipment area sales                                                     54.8    50.0     53.4
Home sales                                                                             43.5    38.5    45.2
Hiring in the area                                                                    55.0    44.0    48.3
Area economy                                                                         53.3    48.1    51.6
Retail business                                                                        28.8    34.4
6 months area economy                                                         53.3    51.9     51.6


Table 2

Percentage who think the impact of the drought on the economy will be...

Severe        36.4%
Moderate    45.5%
Very little   3.0%
Not at all    15.2%

Posted: 3/27/06

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