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Mainstreet Economy Rebounds for August

Mainstreet Economy Rebounds for August

August Survey Results at a Glance:

• Rural economy remains healthy as the Mainstreet index advances for first time since March.
• Less than 5 percent of bankers expect significant fallout from the credit crunch.
• Home sales tumble on Mainstreet as confidence plummets to its lowest level in a year.
• Loan volume reaches second highest level since initiation of survey

Mainstreet Economy Rebounds for August: Bank CEOs See Little Fallout from Credit Crunch

The Mainstreet Economic Index advanced for the first time since March of this year. The index for August indicates healthy economic growth across the region. Hiring and agricultural-land-price growth advanced from July’s already strong readings

Each month, community bank presidents and chief executive officers (CEOs) in non-urban, agriculturally dependent portions of a nine-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, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

The overall index grew to 57.4 from 54.5 in July but was lower than June’s 61.4. "A reading of 50.0 is growth neutral, thus August’s index indicates healthy growth on Mainstreet, and bank presidents and CEOs in the region reported healthy business activity for the month," said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey.

This month, the survey asked bankers to gauge the likely impact of the U.S. and global credit crunch on Mainstreet. Only 4.4 percent of the bankers responded that fallout from the downturn in the mortgage and housing markets would have a significant negative impact on the Mainstreet economy. According to McQuillan, “Our community banks do not make sub-prime loans, or what I would call loans to nonqualified borrowers.”

Weather will be a significant and unknown driver of the rural economies. According to Randy Stokes of Citizens State Bank in Brighton, Ill., “The lack of rainfall and excessive heat is taking a toll on crops locally, while prices seem to be holding lower. A short year for local agriculture is looming.”

Due in large part to the downturn in the stock market and higher energy prices, bankers’ economic confidence for the next six months declined to 49.2 -its lowest level of the year- and down significantly from July’s 58.3.

However, employment prospects on Mainstreet remain strong as the new hiring index rose to 59.8 from July’s 55.5. As in past months, areas with strong ties to energy production, both renewable and nonrenewable, have experienced solid job growth despite the shortage of skilled labor.

Mainstreet job growth is exceeding growth in metropolitan areas by a full percentage point. Our survey indicates that this gap will continue in the months ahead,” said Goss.

While a downturn in the rural housing market has not been as economically damaging as it has been for metropolitan areas of the region or for the nation, the August home sales index of 36.6 dropped from July’s 42.7 and reflected weakness. “The housing market has softened and become more of a buyer’s market,” said Larry Winum of Glenwood State Bank in Glenwood, Iowa.

Bruce Morgan, Ph.D., CEO of Valley State Bank in Roeland Park, Kan., reported, “The slowdown in the housing industry is starting to show up on some area bank balance sheets as non-accrual. A number of home builders and their subcontractors are also showing up as past due.”

The retail sales index dropped to 46.2, its lowest level since January of this year. “Fuel prices and weather conditions, and the lack of rain in Boyd County are impacting the amount of money being spent on Mainstreet,” said Craig Brewster of Butte State Bank in Butte, Neb.,

On a more positive note, farm equipment sales remain strong with an August reading of 55.7, but down from July’s 56.1. “Strong farm income continues to propel the sale of new farm equipment on Mainstreet. I expect this growth to continue in the months ahead,” said Goss.

Bank indicators for August were strong as loans advanced to 76.5, the second highest level since the survey began in 2006, and up from July’s 64.5. Checking deposits rose to 61.8 from 55.5 in July and were ahead of August of last year. On the other hand, certificates of deposit declined to 56.6, the lowest level of the year.

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