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Rural Mainstreet Economic Growth Declines for October

Rural Mainstreet Economic Growth Declines for October:

October Survey Results at a Glance:

  • Rural economy growth declines again as Mainstreet Index dips for a straight second month.
  • Almost 60 percent of the CEOs think the benefits of corn-based ethanol have been oversold.
  • Mainstreet loses jobs as new hiring declines for the fourth time in the past five months.
  • A majority of bankers expect land-price growth to be less than five percent over the next 12 months.

Rural Mainstreet Economic Growth Declines for October:Ethanol Likely Oversold as Solution

The Rural Mainstreet Index (RMI) declined for the seventh time this year, indicating weaker economic growth across the region. Hiring was down significantly from September, but farmland price growth remained robust.

The overall index declined to 52.1, the lowest reading for the year and down from September’s 55.6. "A reading of 50.0 is growth neutral, thus October’s index indicates positive but tepid growth on Rural Mainstreet," said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey.

October’s farmland price index dipped for the fourth time in the past six months to a still vigorous 65.4. This month, bankers were asked how much they expect farmland prices to grow over the next 12 months. More than 58 percent expect farmland prices to grow by less than five percent, while only 5.7 percent estimate that prices will grow by more than 10 percent.

“It is clear that there is real concern that the surge in agricultural land prices over the past several years cannot be sustained,” said Goss.

Said Jim Bohart of Harvard State Bank in Harvard, Neb., “Land prices and cash rent are way out of line with what the producer can generate for income.”

For October, 59.4 percent of bank CEOs indicated they strongly agree that the economic benefits of corn-based ethanol have been oversold.

Mainstreet businesses are experiencing benefits from very healthy farm income as the farm-equipment-sales index rose to 61.3, the second highest level recorded since the survey began in 2005 and well above last month’s 58.2 and August’s 55.7.

Most bankers are expecting farm output and income to be strong for the remainder of 2007. As indicated by Joe Kennedy, CEO of First National Bank of Frankfort, Kan., “Overall the harvest has been good.”

However, heavy rainfall has been a problem across the region. “Yields have been excellent to date, but it remains to be seen how the flooding will impact them overall,” said Ken Henstorf, president of First National Bank in Shenandoah, Iowa.

Problems related to the national economy played a significant part in a substantial downturn in the bankers’ economic optimism regarding the rural economy six months from now as the confidence index plummeted to 49.3 from 56.7 in September.

As a further show of wilting growth, employment gains on Rural Mainstreet deteriorated for a second straight month with the new-hiring index moving below growth neutral to 49.3 from September’s 53.2 and August’s 59.8. “Based on reports from our survey and from government data, I expect Rural Mainstreet job growth to be about one-third of its long-term average with many areas actually losing jobs,” said Goss.

Just as in urban areas, home sales continue to be weak for Rural Mainstreet. The October home sales index declined to 30.7 from September’s 33.6, which was the lowest level of the year. As reported by Bruce Morgan, Ph.D., CEO of Valley State Bank in Roeland Park, Kan, “The real estate market still shows weakness with inventories for existing and newly built homes near all time highs. A number of banks in the area are experiencing an increase in past dues, nonperforming loans, and other real estate related programs.”

Despite strong farm income, bank indicators were down for the month. October loan volume slipped to 61.3 from 67.2 in September and 76.5 in August. Checking deposits decreased to 56.3 from September’s 63.1 and August’s 61.8. Certificates of deposit and other savings instruments dipped to 56.3 from September’s 61.5, but they were up slightly from August’s 56.6.

Each month, community bank presidents and CEOs in non-urban, agriculturally dependent portions of a 10-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, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included. The average community population size covered by the survey is approximately 1,300.

View the survey details and state-by-state report at:

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