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Economic Rebound on Hold as Rural Mainstreet Index Declines Again

Economic Rebound on Hold as Rural Mainstreet Index Declines Again

August Survey Results at a Glance:

  • The Rural Mainstreet Index declined for August.

  •  Even with higher crop yields, bankers expect 2009 farm income to be down from 2008 levels.
  •  More than four in five of bankers indicated that “cash for clunkers” had no impact on their loan volumes.
  •  Only 41 percent of bankers reported an increase in home mortgages from 2008 levels. For Immediate Release:

 

Economic Rebound on Hold as Rural Mainstreet Index Declines Again: Little Local Impact from “Cash for Clunkers”

For a third straight month, the overall index for the Rural Mainstreet economy declined, continuing to indicate significant economic weakness, according to the August survey of bank CEOs in an 11-state region.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100, slipped to a weak 32.0 from 32.6 in July and 34.0 in June. However, August’s reading was well up from February’s record low of 16.9. A reading of 50.0 is considered growth neutral.

“The RMI has remained below growth neutral for 18 consecutive months. After appearing to bottom out earlier in the year, the index, which gauges overall economic activity, appears to be moving sideways or with little change,” said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey in 2005.

The weak national economy has affected the farm sector significantly. With net farm income under pressure, both land prices and sales of farm equipment have weakened over the past several months. This month, bankers were asked about their expectations for 2009 crop yields. More than three in five bankers, or 61 percent, expect crop yields to be significantly up from last year. Only 8 percent of the bankers forecast a decline in crop yields from 2008 levels. Despite this increase in yields, weak farm commodity prices will mean a downturn in 2009 farm income from 2008. Said Bradley Robson, CEO of First State Bank in Belmond, Iowa, “We have missed the bad weather to date, the hail and wind. Crops look excellent and should be 20 percent above last year’s yields. But, with crop prices down, look for 2009 farm income to be off 2008 levels significantly.”

As a result of the expectation of softer farm income, the farmland-price index moved below growth neutral for the 10th straight month, and the farm-equipment-sales index dropped below growth neutral for the 11th consecutive month. Readings, including August’s, indicate that farmland prices continue to wilt and the sale of farm equipment continues to decline. The farm-equipment-sales index sank to 32.4 from July’s 36.2 but was still well up from May’s record low of 28.3. The farmland-price index rose slightly to 43.7 from 41.4 in July, but it was significantly above the record low of 33.1 registered in March of this year.

David Norton, CEO of Filley State Bank in Filley, Neb., said, “Farm real estate sales are limited, but I just had 120-acre dryland parcel go for $3,000 per acre.” He also indicated that the sale of new farm equipment was slow, but used equipment was selling for premium prices.

Despite a lot of positive economic news over the past several month, the confidence index, which tracks expectations for the Rural Mainstreet economy six months out, advanced to a still weak 46.0 from July’s 44.6. Bankers have become a bit more pessimistic regarding the rural economy over the past several months.

This month, bank CEOs also were asked to gauge the impact of the “cash for clunkers” program on vehicle loan volumes at their banks. More than four in five of bankers, or 83 percent, indicated that the program had no impact or a negative impact. Five percent of the bank CEOs reported that vehicle loan volumes had expanded by 5 percent to 10 percent. According to Bob Sutter, vice chairman of Hilltop National Bank in Casper, Wyo., “We have no way to track the incentive--but July 09 vs July 08 auto paper was down significantly. August looks like it will be up significantly.”

Hiring in rural areas remains very frail for the Rural Mainstreet Economy. The new-hiring index for August was unchanged from July’s 25.0. This is the 20th consecutive month that the index has been below growth neutral, due in part to the national and global recessions and weakening farm and energy commodity prices. “Over the past 12 months, rural areas of the region have lost almost 5 percent of their jobs,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.

Like much of the nation, retail sales were less than healthy for the month, with an August retail-sales index of 30.4, up slightly from July’s 29.5. However, the index was down from 33.9 recorded in August 2008. “In terms of back-to-school sales, this year’s volumes and revenues are stacking up to be the worst in several decades for the Rural Mainstreet economy,” said Goss.

Despite the federal tax credit for first time home buyers, the Rural Mainstreet home-sales index declined for a third straight month. The August reading dipped to 39.2 from 40.0 in July. This month we asked bank CEOs to compare home mortgage volumes for August of this year to the same period in 2008. Almost 60 percent reported either no change or a decrease in home mortgage volumes. Kurt Henstorf, president of the First National Bank in Shenandoah, Iowa, said, “Home sales seem to be improving, but our commercial sector remains steady in the doldrums.”

Rural Mainstreet reported slippage in banking numbers for the month. The loan-volume index stood at a cool 45.3, up slightly from July’s 43.1. For August, checking deposit growth softened a bit to 52.0 from July’s much stronger 58.5. The index for certificates of deposit and other savings instruments dipped to 49.4 from 53.8 in July.

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.

This survey represents an early snapshot of the economy of the rural, agriculturally and energy dependent portions of the nation. The Rural Mainstreet Index is a unique index covering 11 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.