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Rural Mainstreet Economy Slows to Another Record Low

Rural Mainstreet Economy Slows to Another Record Low

October Survey Results at a Glance:

  • For a third straight month, the Rural Mainstreet Index drops to a record low.
  • Over 54 percent of bank CEOs expect this year’s holiday sales to be much weaker.
  • Over 47 percent of bankers strongly oppose the Fed’s decision to buy unsecured commercial paper.
  • Farm-equipment sales index drops below growth neutral due to Rural Mainstreet weakness.
  • Retail-sales index for Rural Mainstreet plummets to a record low.

Rural Mainstreet Economy Slows to Another Record Low:
Bank CEOs Expect Very Weak Holiday Buying Season

The Rural Mainstreet Economy continues to stagger with significant pullbacks in new hiring, according to the October survey of bank CEOs in a 10-state region.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100, plunged to a record low for the third consecutive month to 34.4 from September’s 38.5. “The downturn in the national and global economies continues to negatively impact the Rural Mainstreet economy. Last October, the RMI stood at 52.1 or slightly above growth neutral 50.0,” said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey.

“As agricultural-commodity prices have plummeted, the growth in farmland prices has cooled significantly. After peaking at 81.0 in January of this year, the index declined to 60.5, its lowest level since August 2006 and down from September 63.3. Even so, one banker in South Dakota reported recent farmland-price sales of over $10,000 per acre. However, Scott Tewksbury, CEO of Heartland State Bank in Edgeley, N. D., said he expects farmland prices to begin to decline, “With recent commodity price declines, early farm income projections for 2009 are substantially negative. I believe future land sale prices and rents will be lower as a result.”

For the second straight month, the confidence index, which tracks the expectations of the economy six months out, plunged to a record low of 27.2 from August’s 28.6 reflecting concern among bank CEOs regarding the impact of the current credit freeze and impending national recession. This month, 54.3 percent of bank CEOs reported that they expect holiday shopping to be down from last year. In fact, none of the bankers anticipate an upturn in holiday sales this year compared to last.

Rising input costs are also a big concern, pushing down confidence. As indicated by John Schmaderer, president of Tri-County Bank in Stuart, Neb., “The cost of production for all agriculture areas remains a huge concern.”

Despite improving crop conditions, good farm income and little fallout from the national financial crisis, the new-hiring index for October stood at a very weak 35.8, up slightly from August’s record low reading of 33.6. “This is the 10th consecutive month that the index has been below growth neutral, due in part to a national economy that is negatively affecting growth for Rural Mainstreet,” said Goss. Furthermore, due to a lack of available labor on Rural Mainstreet, Jan Thompson of the First National Bank in Volga, S. D. reported losing companies to urban areas of the region such as Sioux Falls.

This month bankers were asked for their opinions on the Federal Reserve’s plan to buy unsecured commercial paper to help relieve the credit crisis. Almost half, or 47.1 percent, of the CEOs strongly disagree with this policy, while 35.7 percent strongly agree with the plan. Joanie Shephard, CEO of First National Bank in Valentine, Neb., captured a great deal of the bankers’ sentiment by strongly agreeing with the Fed decision but “while plugging my nose.”

As a result of a slowing Rural Mainstreet Economy, farm-equipment sales index plummeted to 47.2, the first time it has dropped below growth neutral in two years, and down from September’s much stronger 58.9 and August’s 56.8.

Like much of the nation, retail sales were very weak for the month with an October retail-sales index of 28.3, a record low, and down from 32.8 in September.

Just like the national housing market, theRural Mainstreet home-sales index dipped to a very weak 29.0 from September’s 32.0.

With agriculture commodity prices falling dramatically over the past several months, farmers that hedged their sales have benefited significantly. However, 48.5 percent of the bankers reported that less than one-fourth hedged, or pre-priced their 2008 crop. “This means that a large share of farmers did not lock in higher prices earlier in the year with, consequently, lower profits from declining commodity prices ahead,” said Goss.

Bank indicators for October were mixed with seasonal increases in cash demand. The loan volume index slipped to 50.8 from August’s 61.9, and checking deposits rose to 59.8 from 54.0 in September. The index for certificates of deposit and other savings instruments soared to 65.0 from 46.8 in September and 46.0 in August.

However, banks on Rural Mainstreet report very strong conditions for their banks even as the national banking sector approaches a crisis state. As reported by Mike Bass, president of First National Bank of Hugo in Hugo, Colo., “Large banks and banks that did not properly prepare for the subprime mortgage crunch are the ones having difficulty. My bank is having a good year with very little credit-quality issues.”

Each month, community bank presidents and CEOs in nonurban, agriculturally and resource-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 with almost 200 communities represented in the survey