April Survey Results at a Glance:
- Rural Mainstreet economic growth languishes, due to high energy prices.
- Bank CEOs report job losses for the month.
- Over 80 percent of bank CEOs expect regulatory costs for Rural Mainstreet banks to increase due to the subprime crisis.
Job Losses Continue for Rural Mainstreet as Growth Weakens
Growth for the Rural Mainstreet economy continued to languish with continued job losses, according to the April survey of bank CEOs in an 11 state region.
The overall index, or Rural Mainstreet Index (RMI), rose slightly to a still weak 47.5 from 46.3 in March, well below last April’s reading of 66.9. Higher energy prices are crimping the Rural Mainstreet economy and not just for farmers. “High fuel costs are crippling loggers and truckers needed to haul wood,” said Brian Nicklason, president of Woodland Bank in Remer, Minn. Nicklason added that higher gasoline prices were having a significant negative impact on area tourism.
“Higher energy prices appear to be the culprit in the RMI downturn,” said Creighton University economist Ernie Goss. “Record farm income for much of the region has not shielded the Rural Mainstreet economy from job losses as the new hiring index for Rural Mainstreet remained very weak with an April reading of 43.4, up slightly from March’s 42.5.”
Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey of bank CEOs in 11 states.
According to Rural Mainstreet surveys for 2008, the region’s new hiring index moved below growth neutral 50.0 in January and has not risen above 50.0 since then.
This month, bankers were asked about transparency in the banking sector. Over 80 percent of the Rural Mainstreet bankers expect the fallout from the recent subprime mortgage crisis to generate higher compliance and regulatory costs for Mainstreet bankers. According to Jim Stanosheck, CEO of State Bank in Odell, Neb., “Anytime there are abuses of the financial system by the large financial firms, community banks pay the price.”
Over 42 percent of the bankers expect that the recent crisis will not produce greater transparency of financial statements from those that precipitated the crisis - the mega banks and investment banks. “I doubt that the regulatory changes that will be made due to the lending problems of the mega banks and investment banks will do very little to make their financial statements more transparent,” said Kent Siltman, president of Citizens First State Bank in Walnut, Ill.
Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, added, "We all understand that the current financial debacle in this country was not caused by community banks, but unfortunately, we get lumped into the same category as the mega banks, mortgage brokers and other large financial entities."
Goss said the cynicism expressed by the bankers is certainly a concern, since 96.4 percent of bank CEOs in the survey each have more than 20 years of banking experience.
The national economic downturn and the housing depression are showing up on Rural Mainstreet. Just as in urban areas, home sales continue to be weak for Rural Mainstreet. The April home-sales index expanded to a still very weak 33.6 from March’s 25.8.
Record farm income for crop producers for much of the area continues to drive farmland prices higher. The April farmland-price index stood at a very strong 71.3, but down from March’s robust 78.1
The high level of uncertainty surrounding rising energy prices and the national economic downturn continue to weigh on the economic outlook of the bankers. The confidence index, which tracks the outlook six months out, rose slightly to a feeble 36.9, but up from March’s 36.2.
Very strong farm income has been good news for farm implement dealers with the April farm-equipment-sales index standing at a very strong 71.4, down slightly from March’s 72.5 and up from 64.3 in April 2007. Confirming strong sales, Mike Bass, president of the First National Bank of Hugo in Colorado, reported, “At a few of the farm-equipment auctions that I have attended, sales have been through the roof. I have never seen used machinery sell any better."
However, robust farm income has not translated into rising retail sales as the April retail-sales index remained unchanged from last month at a weak 40.3, but down significantly from 53.3 in April 2007. “Farmers are just not spending a lot of their elevated income with local merchants,” said Goss.
Bank indicators were mixed for April. Farmers facing higher input costs pushed April loan volumes to 57.3, from March’s 54.5 and February’s 47.5. Checking deposits declined for a third consecutive month to 54.8, from 61.2 in March and 67.5 in February. On the other hand, certificates of deposit and other savings instruments rebounded to 57.3 from March’s 51.5.
Each month, community bank presidents and CEOs in non-urban, agriculturally and resource dependent portions of an 11-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, Montana, Nebraska, North Dakota, South Dakota and Wyoming are included. The average community population size covered by the survey is approximately 1,300.
Below are reports for the separate states.
Colorado: Colorado’s Rural Mainstreet continues to grow but at a much slower pace. The state’s Rural Mainstreet Index (RMI) for April was 50.2, down slightly from March’s 50.4. Mike Bass, president of the First National Bank of Hugo, is observing record sales of farm equipment. Not surprisingly the April farm-equipment-sales index stood at a very robust 75.4.
Illinois: Despite very strong farm income, the Illinois Rural Mainstreet Index moved below growth neutral again. The April RMI rose slightly to 48.4 from 47.5 in March. The April farmland price index stood at a very healthy 72.4, indicating that farmland prices and rents will continue to expand at a robust pace. “If regulation of these large, complex financial entities was pro-active we might have avoided the meltdown of the mortgage market and the subsequent recession we seem to be in,” said Kent Siltman, president of Citizens First State Bank in Walnut.
Iowa: Iowa’s RMI dipped below growth neutral again to 47.4, up from March’s 45.1. Very healthy corn and soybean income continues to boost farmland prices and rents with an April farmland price index of 71.0. But weather, as usual, will be an important ingredient of the Rural Mainstreet economy. As indicated by Charles Helscher, president of Farmers Savings Bank in Keota, “We need some warm, dry weather for the next couple of weeks.” And there was concern over the fallout from the subprime crisis. “The possibility of increasing regulatory costs is important to community banks. We will have to do a great job of educating Congress to prevent this spilling over on those of us who had basically nothing to do with these problems,” said James Brown, CEO of Hardin County Savings Bank in Eldora.
Kansas: The Kansas RMI advanced to a still weak 47.6 from 44.8 in March and 42.2 in February. Strong crop income has propelled farm-equipment sales with an April index of 71.5. And, there was concern over regulatory issues. According to Dan Coup, CEO of First National Bank in Hope, “Regarding the lending problems of mega banks and investment banks, history repeats itself. The too-big-to-fail institutions will again cause undue and increased regulatory burden on our community banks.”
Minnesota: Despite very strong farm income, the bad continues to outweigh the good for Minnesota’s Rural Mainstreet economy. The RMI for April was a tepid 48.9, but up slightly from March’s 48.4 and February’s 45.3. As detailed by Brian Nicklason, president of Woodland Bank in Remer, “We have very little agriculture, but our logging industry is suffering greatly. Several strand-board plants have closed due to the housing issues.” But Pete Haddeland, president of First National Bank of Mahnomen, is hopeful that with about 90 percent of snow melted, farmers are still several weeks out on planting.
Missouri: Very healthy farm income has failed to ignite Missouri’s Rural Mainstreet economy. The state’s RMI was again the lowest in the region at 45.2, but up from March’s 40.0. Even so, farmland prices continue to expand at a very strong pace with an April reading 67.7.
Montana: Buoyed by a weak U.S. dollar and a rapidly expanding mining and natural resources industry, Montana’s Rural Mainstreet economy continues to expand at a solid pace. The April RMI slipped to a still healthy 53.2 from 54.2 in March. Farmland and ranchland continue to grow at a vigorous pace with an April index of 73.5.
Nebraska: Due to pullbacks among some of the rural manufacturers, Nebraska’s RMI slipped to 51.4, third highest among the states, from March’s regional high 55.1. Jim Stanosheck, CEO of State Bank in Odell, said, “Manufacturing companies have started laying off employees this past week, and more are expected in the weeks to come.” However, farmland prices and rents continue to advance at a brisk pace with an April index of 77.1. Kathy Thuman, president of Farmers State Bank in Maywood, expressed concern about the rising costs of regulation. She said, “Community banks will definitely pay a price for the subprime market collapse in increased compliance expense.”
North Dakota: The state’s RMI dipped slightly to 50.1 from 50.5 in March. But farm-equipment sales were very strong for the month with an April reading of 75.3. As reported by DeWayne Streyle, CEO of United Community Bank of North Dakota in Leeds, “As a result of the shortage of available new and used farm equipment from implement dealers, equipment sales are bringing record prices at spring auction sales.” However, future income is a matter of concern. As stated by Don Forsbery, CEO of the Independent Community Banks of North Dakota, “I have heard from several farmers that their real concern is the years following 2008, due to the high cost of inputs and increased risk from price volatility.”
South Dakota: The state’s RMI for April dipped slightly to 49.8 from March’s 49.9. As a result of very strong crop income, farmland prices and rents continue to expand at a break-neck pace with an April index of 74.7.
Wyoming: Influenced less by farm income and more by mining and natural resources, Wyoming’s Rural Mainstreet economy expanded at a positive but somewhat slower pace for April. The state’s RMI slipped to 52.1 from 55.0 in March. Farmland and ranchland prices and rents grew at a very rapid rate in April with an index of 78.1.
Next month’s survey results will be released on the third Thursday of the month, May 15.
For historical data and forecasts, visit our website at: http://www2.creighton.edu/business/economicoutlook/
For ongoing commentary on recent economic developments, visit our blog at: www.economictrends.blogspot.com