Main street Economy
May Survey Results at a Glance:
• Hiring index rises to record high
• Home sales advance for second straight month
• About 10 percent of bankers see ethanol financing as a risk to Mainstreet banking
• Over 61 percent of bankers see corporate ownership of farms as having a negative impact on Mainstreet economy
Mainstreet Index Down Though Hiring Expands to Record Level: Ethanol Financing Not a Banking Risk
The Mainstreet economic index from the May survey of bank chief executive officers (CEOs) in non-urban, agriculturally dependent portions of a nine-state area declined for a second consecutive month. Despite the decline, the index continues to indicate significant growth with rapid new hiring across the region. Agricultural land prices continued to grow at a brisk pace.
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 record business activity for May, but with growth somewhat slower than April’s, as the overall economic index declined slightly to 66.4 from April’s 66.9 and March’s 68.1. A reading of 50.0 is growth neutral, thus May’s index indicates brisk growth with the reading well above last year’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.
Ethanol production and high farm income continue to drive the Mainstreet economy into very healthy territory. “This month we asked the bankers whether financing rapidly expanding ethanol production in the region represented a potential threat to Mainstreet investing banks. Only 10.4 percent of the CEOs reported a significant concern,” said Goss.
The monthly hiring index rose to a record high even as skilled labor shortages slowed job growth in some areas. The hiring index for May was 68.3, which was up from April’s 65.3 and up from 62.1 in May of last year. “Bankers are increasingly reporting labor shortages, especially those located close to ethanol plants. The demand is strong for welders and other skilled construction workers,” said Goss.
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 50.8 for May, identical to April’s reading. “I doubt that sub-prime defaults will have any impact on Mainstreet as they were few of those loans here to begin with,” said Charlie Walsh, president of Farmers & Merchant Bank in Burlington, Iowa.
Very strong farm income pushed the farmland price index into very healthy territory at 77.6, but it was down from April’s record 80.2. The farm-equipment-sales index declined for May to 57.0, down from April’s record 64.3, but up significantly from last May’s 43.5.
While the retail index declined from April’s record 53.3, it remained above growth neutral in May at 50.8. This is the first time we have recorded two consecutive indices above growth neutral since the survey began in 2005. However bankers did raise weather related concerns. Kurt Henstorf, president of the First National Bank of Shenandoah, Iowa, said. “Significant amounts of rainfall have damaged our recently planted corn crop and will make timely replanting of corn and planting of soybeans difficult.”
Bank indicators for May were all strong and indicative of an expanding Mainstreet economy. Loans rose to 75.4 from April’s 66.9, checking deposits declined to a still strong 62.3 from 64.4 in April and certificates of deposit advanced to 71.3 from April’s 67.2. Dale Torpey, president of Federation Bank in Washington, Iowa said, “Loan demand has been good.”
This month bankers were asked their assessment of corporate farming. Fully 61.2 percent of the bankers thought that corporate farming had, or would have, a negative impact on the Mainstreet economy. Only 12.2 percent of CEOs gauged corporate farming as having a benign to positive impact on the Mainstreet economy.
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