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Rural Mainstreet Economy Still Weak

Rural Mainstreet Index

September Survey Results at a Glance

 

    • The Rural Mainstreet Index advanced for the first time since June.
    • More than 52 percent of bank CEOs reported that farmland prices have declined while only 8 percent indicated an increase over the past 6 months.
    • Rural Mainstreet lost jobs in September.
    • Almost 70 percent of bankers are opposed to a public option as an element of 2009 healthcare reform.

    Rural Mainstreet Economy Still Weak:
    Fifty-Two Percent of Bank CEOs Report Farmland Price Declines

    For the first time since June of this year, the overall index for the Rural Mainstreet economy expanded but continues to indicate significant economic weakness, according to the September survey of bank CEOs in an 11-state region.

    The Rural Mainstreet Index (RMI), which ranges between 0 and 100, advanced to 36.5 from August’s weak 32.0 and July’s 32.6. A reading of 50.0 is considered growth neutral.

    “The RMI has remained below growth neutral for 19 consecutive months. After bottoming out earlier in the year, the index, which gauges overall economic activity, has indicated little improvement in the rural economy as reported by bankers,” 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.

    Pullbacks in farm income tied to agriculture commodity prices appear to be the culprit restraining growth in the Mainstreet economy. As reported by Bill Anderson, CEO of First State Bank in Hordville, Neb, “The recent decline in corn prices has us concerned as we enter harvest time.”

    Additionally, with 2009 farm income under pressure, both land prices and sales of farm equipment have weakened over the past several months. This month, bankers were asked how much farmland prices had changed over the past six months in their area. Over 52 percent of the bankers reported that farmland prices had declined while only eight percent indicated that prices had risen over the past six months. The September farmland-price index reflected this weakness with a reading of 41.1 which was down from 43.7, but was the 11th straight month that the index has moved below growth neutral.

    Not surprisingly, the farm-equipment-sales index stood at a weak 38.6, but higher than August’s 32.4 and July’s 36.2. With agriculture income down for 2009, farmers have cut back on their purchases of capital equipment. This has weakened Rural Mainstreet businesses linked to the agriculture sector.

    Despite a lot of positive national economic news over the past several months, the confidence index, which tracks expectations for the Rural Mainstreet economy six months out, dipped to 43.5 from August’s 46.0 and July’s 44.6. Bankers have clearly become a more pessimistic regarding the rural economy over the past several months. Dale Bradley, CEO of Citizens Bank in Miltonvale, Kan., said, “The economy is still in a big hole and the way up is a long one.”

    Hiring in rural areas remains very frail. The new-hiring index rose slightly to 27.0 from August’s even worse 25.0. This is the 21st 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 more than 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 a September retail-sales index of 32.8 which was up from August’s 30.4.

    Despite a rebound in the national housing market, the Rural Mainstreet home-sales index stood at a frail 42.7, which was up slightly from August’s 39.2 and July’s 40.0.

    This month bank CEOs were asked when they expect the Federal Reserve to raise interest rates from their current record low 0-0.25 percent. Only 16 percent expect a rate hike before the second quarter of 2010 and 14 percent anticipate the next rate increase to occur beyond 2010. The remaining 70 percent expect the Fed to raise interest rates in the final three quarters of 2010.

    Additionally the bankers were asked whether they supported the public option for insurance coverage as part of the 2009 healthcare reform. Twenty percent supported the public option while 69 percent opposed this part of the reform effort. The remaining 11 percent were undecided. Jim Stanosheck, CEO of State Bank of Odell, Neb., pointed out that according to the President’s speech, only a small portion of Americans would be eligible for the public option.

    Rural Mainstreet reported improving banking numbers for the month. The loan-volume index climbed to 49.3 from August’s cool 45.3. For September, checking deposit growth soared to 61.9 from 52.0 in August. The index for certificates of deposit and other savings instruments inched higher to 50.1 from August’s 49.4.

    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, 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.

    Colorado: Colorado’s Rural Mainstreet Index (RMI) rose to 28.7 from 24.2 in August and July’s regional low 18.6. The September ranch- and farmland-price index dipped to 33.3 from August’s 35.9. The state’s Rural Mainstreet September home-sales index grew to 34.9 from 31.4 in August.

    Illinois: The Illinois RMI once again moved below growth neutral. The RMI for September declined to 27.3 from 28.3 in August. Farmland prices continue to show weakness with a September index of 36.2, up from 33.2 in August. The September home-sales index dipped to 37.2 from 38.0 in August.

    Iowa: Iowa’s RMI once again slipped below growth neutral according to the monthly survey of bank CEOs. The RMI for September expanded to 32.3 from August’s 27.8. The farmland-price index was also below growth neutral with a September reading of 36.9, down from 39.5 in August. September’s home-sales index climbed to 38.5 from 35.0 in September.

    Kansas: The Kansas RMI, like much of the region, was below growth neutral 50.0. The September RMI expanded to a regional low 20.2 from August’s 15.7. The farmland-price index dipped to 24.8 from 27.4 in August. The September home-sales index advanced to 26.4 from August’s 22.9. According to Frank Sullentrop, president of Legacy Bank in Colwich, “Heavy aircraft manufacturing employment (slowdowns) will keep our area economic activity slow for some months.”

    Minnesota: Minnesota’s RMI rose to 23.6 from 19.1 in August. The state’s farmland-price index declined to 28.2 from 30.8 in August. The September home-sales index stood at 29.8 which was up from August’s 26.3. “A late fall will help our crops with wheat coming in above average. However, home sales are still slow,” said Pete Haddeland, CEO of First National Bank in Mahnomen.

    Missouri: Missouri’s RMI expanded to 38.5 from August’s 34.0. The state’s September farmland-price index dipped to 43.1 from 45.7 in August. The home-sales index stood at 44.7, which was higher than August’s reading of 41.2.

    Montana: Montana’s RMI rose to a weak 35.4 from August’s 29.8 and July’s 33.5. The state’s farm and ranchland index expanded to 34.6 from 32.1 in August. The home-sales index was 38.5, up from 35.4 in August. Ken Walsh, CEO of Ruby Valley Bank in Twin Bridges, said, “Harvest is in full swing, and the yields look good. However, calf prices are continuing downward, those that didn't sell early are looking at prices below break even.” Furthermore, Walsh indicates that real estate prices are down with the area not seeing the out-of-state buyers.

    Nebraska: As in past months, Nebraska’s RMI remained below growth neutral. The September RMI expanded to 40.4, up from 35.9 in August. The Nebraska farmland-price index for September slipped to 45.0 from August’s 47.6. The September home-sales index climbed to 46.6 from 43.1 in August. In southwest Nebraska, Kathy Thuman, president of Farmers State Bank in Maywood, reports that the economy continues to hold its own. Jeffrey Gerhart, CEO of the Bank of Newman Grove in Newman Grove, reported, “Weather will again play into this years harvest - as it usually does. We have had a good growing year for both corn and beans.

    North Dakota: For a fourth straight month, North Dakota’s RMI was the highest in the region. The September RMI climbed to 71.0 from 66.5 in August. The state’s September farmland-price index slipped to a still strong 75.6 from August’s 78.2. The September homes-sales index was a very healthy 77.2 which was higher than August’s 73.7.

    South Dakota: The state’s RMI remained below growth neutral with a September reading of 48.6, up from August’s 44.1 and July’s 40.5. The state’s farmland-price index slipped slightly to 53.2 from August’s 55.8. September’s home-sales index was a healthy 54.8 from 51.3 in August.

    Wyoming: Wyoming was one of only two states with RMIs above growth neutral. Wyoming’s RMI rose to 55.8 from 51.3 in August. The September ranch- and farmland-price index was also a very healthy 60.4, down from 63.0 in August. The September home-sales index grew to 62.0 from 58.5 in August. According to Bob Sutter, vice-chair of Hilltop National Bank in Casper, “While unemployment and other indicators are better than most other states, our economy is still softening.”

    The next Rural Mainstreet index will be released on Thursday, Oct. 15.

     

    Follow Ernie Goss on Twitter www.twitter.com/erniegoss

    For historical data and forecasts, visit our website at: http://www.creighton.edu/business/economicoutlook/

    For ongoing commentary on recent economic developments, visit our blog at: www.economictrends.blogspot.com