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Growth on Rural Mainstreet Economy Declines Again

Growth on Rural Mainstreet Economy Declines Again

September Survey Results at a Glance:
• Rural economy remains healthy though the Mainstreet index declined again.
• Almost 50 percent of the bank CEOs believe there is a bubble in farmland prices.
• Percent of bankers seeing a recession as a big threat rose to a record high.
• New hiring declined again.

Growth on Rural Mainstreet Economy Declines Again:
Bank CEOs See Farmland Price Bubble

The Rural Mainstreet Economic Index declined for the sixth time this year. However, the index for September indicates healthy economic growth across the region. Hiring was down significantly from August, but farmland price growth advanced from August’s already strong readings.

Each month, community bank presidents and chief executive officers (CEOs) in nonurban, 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 overall index declined to 55.6 from July’s 57.4. "A reading of 50.0 is growth neutral, thus September’s index indicates healthy growth on Rural Mainstreet as detailed by bank presidents and CEOs in the region," said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey.

September’s farmland price index rose for a second consecutive month to a lofty 70.3.

This month, bankers were asked whether they thought there was a “bubble” in farmland prices on Rural Mainstreet. Over 49 percent strongly agreed there was a bubble or unsustainable growth in farmland prices, with only 9.3 percent strongly disagreeing. However, Kathy Thuman, president of Farmers State Bank in Maywood, Neb., reported, “The farmland price bubble will not burst in the dramatic fashion the residential real estate bubble burst. It will be more of a slow leak.”

For September, survey respondents were also asked about the likely impact of this week’s rate cut by the Fed, and only 14.4 percent expect the rate cut to have impacts on Rural Mainstreet. However, Bruce Morgan, Ph.D., CEO of Valley State Bank in Roeland Park, Kan., disagreed, “The Federal Reserve rate cut should stabilize credit markets and offer some relief for short-term rates that have been too high, given the yield curve.”

Very strong farm income, propelled by good weather for most areas and high grain prices, has meant increasing sales of farm equipment with the September farm equipment sales index expanding to 58.2 from August’s 55.7.

Despite the meltdown in credit markets in August and early September, bankers’ economic optimism regarding the rural economy six months out bounced higher with the confidence index advancing to 56.7 from August’s 49.2, its lowest level of the year.

DeWayne Streyle, CEO of United Community Bank of North Dakota in Leeds, said, “Farm commodity prices are at record levels with reason for optimism in the near future.” As a further sign of waning growth, employment prospects on Rural Mainstreet deteriorated from August with the new hiring index plummeting to 53.2 from 59.8 in August.

“Rural Mainstreet job growth, much like that in urban areas, is slowing, but remains slightly positive. Our survey indicates job growth will continue to weaken but remain positive in the months ahead,” said Goss.

Just as in urban areas, home sales continue to be weak for Rural Mainstreet. The September home sales index declined to 33.6, its lowest level of the year and down from 36.6 in August. According to Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, “The housing market has definitely changed to a buyers market. There is an ample amount of developed lots and existing homes for sale in the Glenwood area.”

Retail sales rebounded to a still weak 49.2 from August’s even more fragile 46.2. Strong farm income has meant healthy bank indicators for September as loans moved lower to 67.2 from 76.5. Checking deposits rose to 63.1 from August’s 61.8. Certificates of deposit and other savings instruments rose from 56.6 in August, the lowest level of the year, to 61.5 for September. 

 

For a complete look at the September release visit: http://www.creighton.edu/business/economicoutlook/

For ongoing commentary on recent economic developments, visit our blog at www.economictrends.blogspot.com