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Mainstreet Economy Slumps for Fourth Straight Month

Mainstreet Economy Slumps for Fourth Straight Month

July Survey Results at a Glance:

 •Rural economy remains healthy, but the index is down for fourth straight month.
• New hiring declines to lowest level since September of 2006.
• Bank CEOs see high energy prices as the biggest threat to the Mainstreet Economy.
• Almost half of bankers see a trade war with China as detrimental to the Mainstreet Economy.

Mainstreet Economy Slumps for Fourth Straight Month: Bank CEOs See High Energy Prices as Biggest Threat

The Mainstreet economic index from the July survey of bank chief executive officers (CEOs) in non-urban, agriculturally dependent portions of a nine-state area declined for a fourth consecutive month. Despite the decline, the index continues to indicate growth with healthy new hiring across the region. Agricultural-land-price growth weakened from June but remains strong.

Each month, community bank presidents and CEOs are surveyed regarding current economic condi-tions 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.

"Bank presidents and CEOs in the region reported healthy business activity for July, although the rate of growth declined for the fourth consecutive month. The overall index dipped to 54.5 from June’s 61.4 and May’s 66.4. A reading of 50.0 is growth neutral, thus July’s index indicates healthy but somewhat slower growth on Mainstreet," 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 identify the number one economic risk to their regions, and 76.1 percent indicated that higher energy prices represented the greatest risk. Loan defaults, a significant national concern, was named by only 13 percent of the CEOs. Only 10.9 percent listed a trade war as the primary risk.

However, there are significant potential economic landmines for Mainstreet bankers in the new farm bill. Bob Laird, CEO of Valley Bank in Sioux Falls, S.D., believes that the loss of local banking will reduce rural economic vitality. “One of the biggest threats to Mainstreet is Farm Credit’s Horizons project, which is attached to the 2007 Farm Bill. If Farm Credit, with its tax-exempt status, is given expanded powers, commu-nity banks servicing rural America will have a limited future,” said Laird

Of course, weather will be a significant and unknown driver of the rural economies. “Drought is beginning to significantly impact our area,” said Kent Shurtleff, CEO of Wyoming National Bank in Riverton. “Our fall irrigation prospect is weak, which will impact the 2008 season.”

Due in large part to higher long-term interest rates and fuel costs, bankers’ economic confidence for the next six months declined to 58.3, the lowest reading for the year and down from 65.5 in June. Oil prices, once again above $70 per barrel, and higher long-term interest rates pulled the confidence index lower.

The new hiring index plummeted to a still solid 55.5 from June’s 61.9 and May’s record 68.3. Areas with strong ties to energy production have had hiring restrained by a lack of workers.Scott McBride, CEO of First National Bank in Buffalo, Wyo., said hiring would be up if there were workers to hire. “Mainstreet job growth has dropped to its historical annual rate of 1.3 percent, but it is still above the current national growth rate,” said Goss.

Because of recent skirmishes with China regarding food trade, the survey attempted to gauge bankers concerns regarding the fallout from global “food fights.” While 45.7 percent of the bankers thought a food trade war with China would be very bad for the Mainstreet economy, only 10.9 percent of the bankers registered it as a significant risk to the rural economy.

While the downturn in the rural housing market has not been as economically damaging as it has been for the rest of the nation, the July home sales index of 42.7, down from 53.4 in June, reflected weakness. As reported by Bruce Morgan, Ph.D., CEO of Valley State Bank in Roeland Park, Kan., “Housing continues to be soft both in new construction and in resales.” On the other hand, areas with close ties to energy production report housing shortages.

For only the third time since the survey began in fall 2005, the retail sales index moved above growth neutral to 52.7, from 48.2 in June. “This modest growth reflects healthy farm income and economic growth spurred by ethanol production. However, I expect higher energy prices may restrain this growth in the months ahead,” said Goss.

While bank indicators for July were much stronger than a year ago, they were down from last month. Loans slumped to 64.5 from June’s 78.1, and checking deposits declined to 55.5 from June’s 58.8. On the other hand, certificates of deposits grew from June’s 61.4 to 65.5 in July.

Colorado: Colorado’s Mainstreet index declined again. The July index of 57.6 was the second highest in the region but down significantly from June’s 63.8. According to Mike Bass, president of First National Bank of Hugo, “The winter wheat harvest is 90 percent done in our area with excellent yields around 40 bushels per acre average, good weight and fair protein.” With the strong farm outlook, bankers expressed a very posi-tive outlook with a July confidence index of 60.6.

Illinois: The July Mainstreet index for Illinois declined for the month. Illinois was one of only two states with readings below growth neutral 50.0. The index declined to 49.7 from 57.5 in June and 60.1 in May. James Hahn, CEO of Palmer Bank in Taylorsville, said “High fuel and electricity costs, combined with few good employment opportunities, continue to have a negative effect on our local economy.” Despite the down-turn, farmland prices remained strong with a July index of 59.6.

Iowa: July’s Mainstreet index for Iowa declined to 47.9 from June’s 53.9. Iowa and Illinois were the only two states with readings below 50.0. Despite this downturn, bankers in Iowa have a positive outlook. According to Charles Helscher, president of Farmers Savings Bank in Keota, “Plenty of opportunity still exists in the grain market, making it more important than ever for the farmers to have a marketing plan.” The July confidence index was 51.2.

Kansas: The Mainstreet index for Kansas dipped to 52.2 from June’s healthier 60.8. However, the weather has been an important factor in rural Kansas. Bruce Morgan, Ph.D., CEO of Valley State Bank in Roe-land Park, said, “As in most of Mainstreet, excessive moisture has been an issue. Continued high gas prices have had an impact on retail sales.” The retail index for Kansas was a soft but positive 52.2 for July.

Missouri: The state’s Mainstreet index declined to 53.8 from June’s brisk 60.5. Hiring in rural areas of Missouri remained healthy with a July reading of 54.7 from 61.0 in June. “Job growth in Missouri remained healthy and well balanced between metropolitan and rural areas,” said Goss.

Nebraska: July’s Mainstreet index for Nebraska slipped to slightly above growth neutral at 51.4, from June’s 57. However, the outlook is strong for most bankers in the state.  “Thanks to record wheat yields and high prices, farmers have been able to pay carryover as well as current operating debt,” said Kathy Thuman, president of Farmers State Bank in Maywood. “Drought concerns have eased and recent strong storms have caused little damage in the area.” Hiring in rural areas was strong, especially for areas close to ethanol plant operations or the construction of ethanol plants.

North Dakota: The Mainstreet index for North Dakota plummeted to 51.1 from June’s vigorous 60.4. Despite the downturn, bankers in the state remain optimistic. According to Nancy Baerwald of Countrybank USA in Cando, “The majority of the state has produced a very good crop and with commodity prices in an up-ward trend, this will prove to be a record profit year for some agriculture producers. That will obviously have a positive affect on main-street businesses.” The July confidence index stood at a healthy 54.6.

South Dakota: The Mainstreet index for July declined to 54.3 from June’s much stronger 61.2 “Cen-tral South Dakota is experiencing a good winter wheat harvest and prices are high,” said Todd Douglas, CEO, First National Bank in Fort Pierre. “This should trickle down to Mainstreet.” July hiring was strong at 55.2.

Wyoming: Higher energy prices, a negative for much of the nation, have been a significant and posi-tive driver for the Wyoming economy. The Mainstreet index stood at a regional high of 64.1, but down from 72.1 in June. Scott McBride, CEO of First National Bank in Buffalo, said, “Wyoming’s economy continues to be strong because of natural gas exploration and production.” However, he reported that there was a reduction in drilling for July. Bankers see other forms of energy production surfacing in Wyoming. Bob Sutter, vice chairman of Hilltop National Bank in Casper, noted an increasing interest in uranium and wind farming.


The summaries from the July survey can be found at:

Next month’s survey results will be released on the third Thursday of the month, August 16.

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