Rural Mainstreet Economy Declines to Record Low: Retail Continues to Suffer
May Survey Results at a Glance:
- Rural Mainstreet economic growth declined to lowest level since the survey began.
- Farmland price growth and farm-equipment sales remain very strong. • Almost 53 percent of bank CEOs think farm subsidies should be capped.
- Almost 36 percent of bankers think subsidies for cellulosic ethanol should be increased.
Farmland continued to escalate in price and farm-equipment sales were brisk for May, while the Rural Mainstreet Index (RMI) declined to its lowest level since the survey began in late 2005, according to the May survey of bank CEOs in an 11-state region. The overall index, or Rural Mainstreet Index (RMI), declined to 42.6 from April’s weak 47.5, well below growth neutral 50.0. Weather and higher energy prices are crimping the Rural Mainstreet economy.
“It has been a very cold and wet spring and planting is behind normal. High fuel and input costs have people closely looking at overall costs,” said Pete Haddeland, president of First National Bank in Mahnomen, Minn.
As in prior month, higher energy prices are hurting businesses and farms located in rural areas of the 11-state region. “However, even as businesses on Mainstreet suffer, record farm income is propelling farmland prices higher with farm equipment sales remaining very strong,” said Creighton University economist Ernie Goss.
Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey. New hiring in the region was weak for May with a reading of 46.7, up slightly from April’s anemic 43.4. 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.
Very strong farm income has been good news for farm implement dealers with the May farm-equipment-sales index standing at a still very strong 69.3, but down from April’s 71.4 and March’s 72.5. However, robust farm income and higher travel costs have not translated into stronger retail sales as the May retail-sales index plummeted to 36.7 from 40.3 in April, down significantly from 50.8 in May 2007. “Farmers are just not spending a lot of their elevated income with local merchants, except for agriculture-equipment dealers,” said Goss.
And the rural bankers agree. This month, bankers were asked if higher gasoline prices have encouraged local residents to shop locally instead of traveling to distant cities to shop. Only 15.7 percent reported a definite increase in local sales stemming from higher gasoline prices while 21.6 indicated there was no increase in local buying. Barry Linnens, CEO of Cottonwood Valley Bank in Cedar Point, Kan., said local consumers are still traveling to the cities to shop, but they are just making fewer trips and making larger purchases. But, James R. Brown, CEO of Hardin County Savings Bank in Eldora, Iowa said, “Retail sales appear to be stronger than normal this time of year. Gas prices will continue to have a strong effect on this trend.”
Record farm income for crop producers for much of the area continues to drive farmland prices higher. The May farmland-price index stood at a very strong 71.2, down slightly from April’s 71.3.
The national economic downturn and the housing depression are showing up on Rural Mainstreet. The May home-sales index expanded to a still very weak 35.8 from April’s 33.6 and March’s 25.8.
Recent good national economic news helped push the confidence index up to 47.5 from April’s 36.9. However, the index, which tracks the economic outlook six months out, has been below growth neutral 50.0 for eight straight months.
Bank indicators were mixed for May. Farmers, facing higher input costs, pushed May loan volumes to 59.3 from April’s 57.3. Additionally, due to farm cash demands, the index for certificates of deposit and other savings instruments declined to 55.1 from April’s 57.3 and May 2007’s 71.3. Checking deposits grew for the first time since January, with a reading of 59.3, up from April’s 54.8.
Bankers were asked their opinion on subsidies for corn-based ethanol with 35.3 percent indicating that subsidies should be increased for cellulosic ethanol production, with the increase paid for by a reduction in corn-based ethanol subsidies. However, 29.4 percent disagreed with this policy change. As stated by Gary Meyer of Peoples Webster County Bank in Red Cloud, Neb., “It seems as though ethanol production is being unfairly labeled as a major factor in food price increases.”
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 economy picked up steam in May. The state’s Rural Mainstreet Index (RMI) for May rose to 53.4 from April’s 50.2 and March’s 50.4. Farmland and ranchland prices continue to grow at a very brisk pace with the May reading standing at a robust 89.2. Likewise, farm-and ranch-equipment sales stood at a vigorous 87.3.
Illinois: Despite very strong farm income, the Illinois Rural Mainstreet Index once again moved below growth neutral. The May RMI dipped to 46.7 from April’s 48.4 and March’s 47.5. It appears that higher gasoline prices are not encouraging people to buy locally. Retail sales for the state’s rural, agriculturally dependent areas stood at a weak 40.2. “The ‘Walmart-ization’ of retailing has decimated rural retail stores, so it is no longer a question of buying locally to save gas. There are no local stores, so people must travel the 20 or 30 miles to the next town to do their grocery shopping, clothes shopping, or even to go to the hardware store. They may have reduced the number of trips they are making, but they still have to make the trips,” said Kent Siltman, president of Citizens First State Bank in Walnut.
Iowa: Iowa’s RMI dipped below growth neutral again to 44.9 from April’s 47.4 and March’s 45.1. But the May farmland price index of 74.9 and farm-equipment-sales index of 73.3 reflect healthy farm income. As indicated by Kurt R. Henstorf, president of First National Bank in Shenandoah, “We recently received notification of one manufacturing-plant expansion and have had several main-street retail stores open this month. Our main-street buildings are about full, and our local economy seems to be holding its own, unusual given the national economic situation.”
Kansas: The Kansas RMI slipped to a weak 47.3 from April’s 47.6. Strong crop income has propelled farmland prices with a May index of 78.9. Despite the healthy farm income, the retail sales in rural areas of Kansas were weak with a May index of 40.6. “People travel to their jobs outside the local area and then shop prior to returning to their homes," said Barry Linnens, CEO of Cottonwood Valley Bank in Cedar Point.
Minnesota: Higher energy prices continue to hamper growth in Minnesota’s rural areas. The RMI for May declined to 42.3 from April’s tepid 48.9. Furthermore, the confidence index stood at a weak 47.2. According to Pete Haddeland, president of First National Bank in Mahnomen, “High fuel and input costs have people closely looking at overall costs.”
Missouri: Rural areas in Missouri continue to underperform the rest of the region. The RMI for May was a regional low of 31.1, down dramatically from April’s 45.2. However, all reports were not negative. As reported by Nancy Ruyle, CEO of Citizens Bank in Rogersville, “Our area seems to be rebounding somewhat. Home sales have started to pick up, and retail business is also picking up.
Montana: The weak dollar and strong commodity-price growth has aided Montana’s rural economy. The RMI for May rose to 54.4 from April’s 53.2. Nebraska: Nebraska’s RMI rose to the second highest reading in the region at 62.0, up significantly from April’s 51.4. The May farmland price index was a robust 93.5, as strong farm income boosts demand. But there were a few negative reports. According to Kathy Thuman, president of Farmers State Bank in Maywood, “As agriculture producers, we are never satisfied. After eight years of drought, corn planting is behind schedule due to wet conditions.” North
Dakota: The RMI for North Dakota advanced to a healthy 56.6 from April’s 50.1 and March’s 50.5. However, retail sales were a weak 36.4 for May, reflecting what some see as a trend. Scott Tewksbury, CEO of Heartland State Bank in Edgeley, sees large-scale farming operations doing less business locally. “The ban on corporate farming has not kept farm operations from growing to large-scale size that may do less business with the Mainstreet economy. The ban has hampered financing efforts for large-scale, capital-intensive livestock operations in the state that could have added to the local economic base.”
South Dakota: South Dakota’s RMI for May rose dramatically to a solid 54.3 from April’s 49.8 and 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 a May index of 90.7, up sharply from April’s 74.7.
Wyoming: Influenced less by farming and more by mining and natural resources and a cheap dollar, Wyoming’s Rural Mainstreet economy expanded at the fastest pace in the region with a reading of 65.5, up significantly from April’s 52.1 and March’s 55.0. Farmland and ranchland prices and rents grew at a very rapid rate in May with a reading of 90.4, up from April’s 78.1. Even so, there were reports of slower growth. “While there has been some moderation in the very strong Wyoming economy, it appears that it is a reflection of maturity in the strong oil-and gas-inspired economic strength, rather than a decline in activity. Furthermore, the in-migration of labor is somewhat frustrated by a shortage of reasonably priced rentals and single family residences,” said Bob Sutter, vice chairman of Hillltop National Bank in Casper.
Tables 1 and 2 below summarize findings from the May survey with an index above 50.0 indicating growth and an index below 50.0 signifying weakness. Next month’s survey results will be released on the third Thursday of the month, June 20.
Table 1: Rural Mainstreet Economy For Last Two Months and One Year Ago: (index > 50 indicates expansion)
Table 2: The Mainstreet Economy
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