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Rural Mainstreet Economy Slows to Another Record Low

Rural Mainstreet Economy for September

September Survey Results at a Glance:

  • For a second straight month, the Rural Mainstreet Economic Index drops to a record low.
  • Almost 90 percent of bankers strongly reject any government bailout of Lehman Brothers.
  • Over 50 percent of bankers think Fannie Mae and Freddie Mac should be privatized.
  • Almost 60 percent of bank CEOs report a significant tightening of credit.

Rural Mainstreet Economy Slows to Another Record Low: Bank CEOs Support Privatizing Fannie and Freddie

The Rural Mainstreet Economy continues to falter with significant pullbacks in new hiring, according to the September survey of bank CEOs in an 11-state region.

The overall index, or Rural Mainstreet Index (RMI), which ranges between 0 and 100, plunged to a record low for the second consecutive month to 38.5 from August’s 38.9. “There has been a considerable deterioration for the Rural Mainstreet Economy over the past year. Last September, the RMI stood at much healthier 55.6,” said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey.

“Even with robust agriculture commodity prices, we are tracking less growth in farmland prices. After peaking at 81.0 in January of this year, the index declined to 63.3 for September. “We are seeing big increases in operating expenses due to fuel and fertilizer prices. At some point, the expenses will offset the good commodity prices,” said Kathy Thuman, president of Farmers State Bank in Maywood, Neb.

The monthly economic confidence index plunged to a record low of 28.6, which was down from August’s 36.1 and reflects concern among the bank CEOs regarding the impact of the current credit crisis. This month, 59.6 percent of bank CEOs reported that credit standards had tightened significantly. As a measure of the bankers’ concern, 52.0 percent said that Fannie Mae and Freddie Mac should be privatized. However, David Steffensmeier, president of First National Bank in Beemer, Neb., said, “The return of sensible credit standards and pricing for risk was long overdue.”

Despite improving crop conditions, good farm income and little fallout from the national financial crisis, the new-hiring index for September indicated a loss of jobs with a second straight record low reading of 33.6, down from August’s 36.5. “This is the ninth 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.

However, a cooler Rural Mainstreet Economy has not significantly dented the growth in farm-equipment sales. The September farm-equipment sales index rose to a healthy 58.9 from 56.8 in October.

Much like the rest of the nation, retail sales were very weak for September with a September retail-sales index of 32.8, which was down from 33.9 in August.

“Furthermore, the national economic downturn and the housing depression are showing up on Rural Mainstreet. The September home-sales index expanded to a very weak 32.0 from August’s 31.0. According to Pete Haddeland, CEO of First National Bank in Mahnomen, Minn., “The prolonged period of high energy prices has begun to take its toll on real-estate sales on Rural Mainstreet. A long, cold winter will be bad without large decreases in energy prices.”

Bank indicators for September were mixed with seasonal increases in cash demand. The loan volume index was 61.9, up from 49.2 in August, and checking deposits rose to 54.0 from 50.0 in August. The index for certificates of deposit and other savings instruments stood at a weak 46.8, but up from 46.0 in August.

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