Rural Mainstreet Economy Improves for November
November Survey Results at a Glance:
- Rural Mainstreet index expands to highest level since May 2010.
- Approximately 23 percent of bankers report irrigated farmland prices are up in their area over past year by 11 to 20 percent with average growth of almost 8 percent.
- Approximately 18 percent of bankers think the blenders’ tax credit for ethanol should expire at the end of the year.
- Farm equipment sales rise to highest level since May 2008.
Rural Mainstreet Economy Improves for November:
Irrigated Farmland Rose 8 Percent in Last Year
For the first time since June, the overall index for the Rural Mainstreet economy moved above growth neutral 50.0, according to the November survey of bank CEOs in a 10-state region.
Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, increased to 53.3 from October’s much weaker 48.4 and September’s 47.6. This is the highest reading recorded since May of this year and is well above the reading for November 2009.
Creighton University economist Ernie Goss said, “The Rural Mainstreet economy is behaving like the nation with a lot of zigzags in growth. However, I expect very healthy farm income to begin to have positive but somewhat muted impacts on businesses on Rural Mainstreet. Businesses heavily dependent on the farm economy continue to do quite well though.” Goss and Bill McQuillan, CEO of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.
Farming: The farmland price index soared for the month with the index moving above growth neutral for a 10th straight month to 68.1 from 60.0 in October. This is the highest recorded index since May 2008. The farm equipment sales index likewise bounced higher with a November reading of 68.1, up significantly from October’s 61.0 and moving to its highest level since May 2008. Scott Tewksbury, CEO of Heartland State Bank in Edgeley, N.D. said that,
“One area farm equipment dealer told me he had record sales for October.” Additionally; he did report that operating loans were being repaid quicker than normal due to high commodity prices and decent yields.
“While growth for businesses on Rural Mainstreet has been fragile at best, farm indicators remain very strong, including farmland prices and the sale of agricultural equipment. This month, we asked bankers how much prices for irrigated farmland had expanded in their area over the past year. Approximately 23 percent indicated that prices had grown between 11 percent and 20 percent with average growth of almost 8 percent,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.
Banking: Flush with cash, farmers have significantly reduced their borrowing. Loan volumes plummeted for a second straight month to 35.3 from October’s 48.4. For the ninth straight month, the other two banking indicators stood above growth neutral. The checking deposit index improved to 76.3 from October’s robust 73.0. The index for certificates of deposit and other savings instruments expanded to 55.8 from October’s 54.9.
This month, bankers were asked what factors were limiting their lending. “The most frequently cited reason- with 37 percent indicating that is was the number one issue– was a lack of demand from potential borrowers. Only 13 percent indicated that bank regulator concerns was the prime factor limiting lending, while 19 percent reported that the credit quality of applicants was the chief impediment to greater lending,” said Goss. Pete Haddeland, CEO of First National Bank in Mahnomen, Minn., said, “The regulators are overreacting to the small banks. At the same time, they are handing money out left and right to the big banks.”
On the other hand, Kurt Henstorf, president of First National Bank in Shenandoah, Iowa, indicated that loan ratios had declined for several reasons, but foremost among them being lack of borrower demand. “However, credit quality since 2008 has been impacted by the economy and banking regulators are very restrictive, especially with regards to commercial real estate,” said Henstorf.
Jobs: Once again the region lost jobs with a November hiring index rising slightly to a still weak 46.8 from October’s 46.0. “Many areas in the Rural Mainstreet area are still losing jobs,” said Goss.
Ethanol blenders’ tax credit: The federal blenders’ tax credit of 45 cents per gallon of ethanol produced is set to expire on Dec. 31. Bankers were asked what action Congress should take regarding the program. Only 13 percent of bankers supported extending the program permanently, while 18 percent called for the expiration of the program at the end of the year. One-third support extending the credit for three to five years, while the remaining 36 percent support extending it for one to two years.
However, many bankers expressed strong support. For example, Kathy Thuman, president of Farmers State Bank in Maywood, Neb., said, “Biofuel credits have been a real boon to the southwest Nebraska economy and to the farm economy in general. I'd like to see alternative fuels continue to get support from Congress.”
Confidence: Despite a slow-growth rural economy, bankers continue to be optimistic regarding future economic prospects. The economic confidence index, which reflects expectations for the economy six months out, advanced to 63.8 from 57.3 in October. This is significantly up from the weak 46.0 recorded three months ago.
Home and retail sales: Home sales remained weak with a November reading of 45.1 which was up from October’s 42.1. This is the fifth straight month the reading was below growth neutral 50.0. In a very unexpected turn, the retail sales index moved above growth neutral with a November reading of 50.1, up from 45.1 in October.
Each month, community bank presidents and CEOs in nonurban, agriculturally and energy-dependent portions of the 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.
This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 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 RMI for November was once again below growth neutral. The November reading rose to a frail 44.7, a regional low, from October’s 43.3. The November farmland and ranchland price index increased to 63.8 from October’s 57.4. Colorado’s farm equipment sales index improved to 64.4 from 58.4 in October. The rate of job losses for Rural Mainstreet Colorado over the past 12 months was 5.9 percent.
Illinois: For a seventh straight month, Illinois’ RMI advanced above growth neutral. The November reading was 62.7, a regional high and up from October’s 55.6. For a 10th straight month, farmland prices advanced above growth neutral with a November reading of 69.3, up from October’s 63.6. Farm equipment sales for November expanded to 67.5 from 64.6 in October. The rate of job gains for Rural Mainstreet Illinois over the past 12 months was 5.5 percent.
Iowa: The state’s RMI rose above growth neutral for the month with a November reading of 54.3, which was higher than October’s 48.6. The farmland price index expanded to 68.6 from 60.1 in October. The state’s farm equipment sales index grew to 69.2 from October’s 61.1. The rate of job gains for Rural Mainstreet Iowa over the past 12 months was 0.8 percent.
Kansas: The RMI for Kansas rose above growth neutral 50.0 for the month. The index climbed to 57.4 from October’s 51.0. The farmland price index increased to 70.2 from 61.3 in October. The November agricultural equipment sales index rose to 70.8 from October’s 62.3. The rate of job gains for Rural Mainstreet Kansas over the past 12 months was 1.6 percent.
Minnesota: The November RMI for Minnesota climbed to 60.7 from October’s 55.2. Minnesota’s farmland price index rose to 71.8 from 63.4 in October. The agricultural equipment sales index stood at 72.4, which was up from October’s 64.4. The rate of job gains for Rural Mainstreet Minnesota over the past 12 months was 3.0 percent.
Missouri: The RMI for Missouri increased to 45.8 in November from 41.6. The farmland price index for Missouri climbed to 64.4 from 56.6 in October. The November farm equipment sales index advanced to 65.0 from October’s 57.6. The rate of job losses for Rural Mainstreet Missouri over the past 12 months was 4.1 percent.
Nebraska: The November RMI for Nebraska moved higher to 56.7 from October’s 52.0. The farmland price index climbed to 69.8 from 61.8 in October. The farm equipment sales index grew to 70.4 from October’s 62.8. Larry Rogers, president of the First Bank of Utica reported, “We have plenty of liquidity and very strong loan demand for agriculture. But, it appears the small business community is suffering as people are being laid off.” The rate of job gains for Rural Mainstreet Nebraska over the past 12 months was 1.0 percent.
North Dakota: North Dakota’s November RMI expanded to 57.6 from October’s 52.8. The farmland price index increased to 70.2 from October’s 62.2. Farm equipment sales for November stood at 70.8, up from October’s 63.2. The rate of job gains for Rural Mainstreet North Dakota over the past 12 months was 1.0 percent.
South Dakota: For the first time since July, the RMI for South Dakota climbed above growth neutral. The index for November advanced to 54.8 from 49.7 in October. The farmland price index climbed to 68.8 from October’s 60.7. South Dakota's farm equipment sales index was 69.4, up from 61.7 in October. David Callies, CEO of Miner County Bank in Howard, indicated, “There is plenty of liquidity in banking, but the regulatory environment and low loan demand are current and future concerns.” The rate of job gains for Rural Mainstreet South Dakota over the past 12 months was 0.9 percent.
Wyoming: Wyoming’s RMI for November advanced to 55.0 from October’s weak 49.3. The November farmland and ranchland price index rose to 68.9 from October’s 60.5. The state’s agricultural and farm equipment sales advanced to 69.5 from 61.5 in October. “The potential of the Niobrara shale is improving the attitude of our clients,” said Bob Sutter, vice chairman of Hilltop National Bank in Casper. The rate of job gains for Rural Mainstreet Wyoming over the past 12 months was 0.7 percent.
For historical data and forecasts visit: www2.creighton.edu/business/economicoutlook/
Follow Ernie Goss on Twitter www.twitter.com/erniegoss