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Mainstreet Economy Dips for Third Straight Month

Mainstreet Economy Dips for Third Straight Month:

June Survey Results at a Glance:

• Area economy remains strong, but growth down from May
• Home sales rise to highest level since survey began in 2005
• Approximately 45 percent of bank CEOs strongly support limitation on federal farm support
• Only 20 percent of bankers see immigration as a strong, positive growth factor for Mainstreet

Mainstreet Economy Dips for Third Straight Month:
Few Bank CEOs See Economic Benefits from Immigration

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

As in prior months, strong farm income and biofuel production has created growth. According to Dale Torpey, president of Federation Bank in Washington, Iowa, “Our biodiesel plant is ready to go online with approximately 25 new jobs. Crops also look very good.” "

Bank presidents and CEOs in the region reported very healthy business activity for June but, with growth somewhat slower than last month, as the overall economic index dipped to 61.4 from May’s 66.4. A reading of 50.0 is growth neutral. Thus, June’s index indicates brisk growth with the reading well above last June’s 54.5," said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey.

Higher fuel costs and short-term interest rates trimmed some of the growth associated with ethanol production and high farm income. Bankers report that higher interest rates have adversely impacted residential construction, slowing growth in the Mainstreet economy.

“Short term interest rates are too high, based on the historic spreads between the three-month and 30-year U.S. Treasury bonds,” said Bruce Morgan, CEO of Valley State Bank in Roeland Park, Kan.

Despite higher interest rates and fuel costs, bankers’ economic confidence for the next six months remained high at 65.5, although it was down slightly from May’s 66.4. Strong hiring is certainly a factor driving confidence higher as Mainstreet added jobs at a healthy pace in June with a hiring index of 61.9, though down significantly from May’s record 68.3. “Mainstreet job growth is currently running at an annualized rate of 2.0 percent or almost double the historical average,” said Goss.

This month, bankers were asked to gauge the importance of immigration and limitations on federal farm support payments to the Mainstreet economy. Only 20 percent of bankers concluded that immigration had strong and positive impacts. On the other hand, 40 percent strongly disagreed that immigration had a strong positive impact on the Mainstreet economy. Regarding a federal farm bill that supports a $250,000 per farm limitation on subsidy payments, 45.5 percent strongly agreed and only 15.9 percent strongly disagreed to the limitation.

While the downturn in the housing sector and problems associated with sub-prime loan defaults have riddled the national economy, the home-sales index for Mainstreet stood at 53.4, up from 50.8 in May. How-ever, bankers closer to metropolitan areas report difficulties associated with housing.

According to Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, “New home con-struction continues at a steady pace, but sales have slowed moderately, compared to last year at this time with it becoming more of a buyer’s market.”

Retail sales growth once again turned negative with a retail sales index of 48.2 for June, down from May’s 50.8. Higher fuel costs continue to cut into retail sales in the region.

Bank indicators for June were strong and indicative of an expanding Mainstreet economy. Loans rose to 78.1 from May’s 75.4, checking deposits declined to 58.8 from 62.3 in May, and certificates of deposit dipped to 61.4 from May’s 71.3

Colorado: The June Mainstreet index for Colorado of 63.8 was down from May’s healthy reading of 66.9. Hiring in rural portions of Colorado was brisk with a June index of 64.3. “While job growth in rural Colorado has declined somewhat, it continues to outpace the region and is double that of the nation,” said Goss.

Illinois: The Illinois June Mainstreet index declined to 57.5 from 60.1 in May and 61.7 in June. Hiring growth in rural areas of the state expanded from May with a June reading of 58.0, down from May’s 61.9.

Iowa: June’s Mainstreet index for Iowa declined to 53.9, a regional low, from May’s 59.1. New job growth was solid for the month with a hiring index of 54.3, down from 60.9 in May. Steven Lane, CEO of Se-curity Savings Bank in Farnamhamville, said, “The economy seems to be strong. Farmers are spending money as corn price remain strong. I have concerns regarding fuel and other input costs going forward into next year.”

Kansas: The Mainstreet index for Kansas dipped to a still healthy 60.8 from May’s 65.2. The state’s employment or new hiring index declined to 61.3 from May’s 67.1. As with most of Mainstreet, excessive moisture has been an issue. According to Joe Kennedy, CEO of First National Bank in Frankfort, “Somewhat wet in our area but it beats the drought we’ve had for the last five years. Corn looks good with some replanting on beans due to wet conditions.”

Missouri: Missouri’s Mainstreet index declined to a still very vigorous 60.5 from 66.0 in May. Hiring in rural areas of the state remained strong with a June new hiring index of 61.0, down from 67.9 in May.

Nebraska: The Mainstreet index for Nebraska was down again in June to 57.8 from May’s 61.8. Hiring in rural areas of the state for June was solid at 57.8 but down from May’s reading of 63.6. However, weather will play a key role in the months ahead. “In southwest Nebraska, the wheat looks good, and we are expecting record yields, barring any hailstorms. We have not begun irrigating due to plentiful rainfall, too much in some places. But the corn is in good shape,” said Kathy Thuman, president of Farmers State Bank in Maywood.

North Dakota: The Mainstreet index for North Dakota weakened slightly to a still strong 60.4 from 64.9 in May and 65.3 in April. New hiring remained vigorous in rural portions of the state with a June hiring index of 66.8. “North Dakota moisture conditions have changed in the past month from adequate to excessive. Pastures are excellent, but there is a strong concern over potential disease problems in small grains and some oil crops,” said DeWayne Streyle, CEO of United Community Bank of North Dakota in Leeds.

South Dakota: The Mainstreet index for June declined to 61.2 from May’s 65.8. Hiring growth in rural areas of the state was brisk with a June new hiring index of 61.6.

Wyoming: As in past months, Wyoming’s rural economy continues to significantly outpace the region and the nation. The state’s Mainstreet index stood at a regional high of 72.1 compared to May’s 82.5. Hiring in rural portions of Wyoming was brisk with a June new hiring index of 72.7, down from May’s 84.9. Reflecting on the prevailing sentiment on restrained growth in rural
Wyoming, John Hay, CEO of Rock Springs National Bank in Rock Springs, said, “The economy remains very strong with a shortage of affordable housing and skilled work force holding us back.”  Next month’s survey results will be released on the third Thursday of the month, July 19.

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