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Mainstreet Index lowest since August 2009

January Survey Results at a Glance:

  • For a fifth straight month, the Rural Mainstreet Index fell below growth neutral.
  • Farm equipment-sales declined to yet another record low level.
  •  Approximately one-fifth of bankers reported cuts in ethanol production in their area.
  • Half of the bankers judge rising regulatory costs as the top 2016 threat to community banks.

Rural sceneThe Creighton University Rural Mainstreet Index for January fell from December’s weak reading, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, sank to 34.8 from December’s 41.5.

“This is the fifth straight month the overall index has declined, and the lowest reading since August 2009. Recent declines are the result of lower agriculture and energy commodity prices and downturns in manufacturing. Over the last 12 months, prices for farm products have fallen by approximately 15 percent, and for fuels by roughly 20 percent," said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

Sinking prices for grain and fuel have had moderate impacts on the region’s ethanol industry. "Approximately one-fifth of the bank CEOs reported that ethanol plants in their area had reduced production, while seven of 10 bankers indicated that ethanol plants had made no changes to their production levels,” said Goss.

Farming and ranching: The farmland and ranchland price index for January sank to 23.9 from December’s 28.8. “This is the 26th straight month the index has moved below growth neutral. But, as in previous months, there is a great deal of variation across the region in the direction and magnitude of farmland prices with prices growing in some portions of the region,” said Goss.

The January farm equipment-sales index plummeted to a record low 7.0 from December’s record low 8.8. “The strengthening U.S. dollar and global economic weakness have pushed grain prices down by 8 percent, and slaughter cattle prices 28 percent lower over the past 12 months. These weaker prices have discouraged farmers from buying additional agriculture equipment, and have negatively affected the agriculture equipment dealers and manufacturers in the region,” said Goss.

According to Jim Eckert, president of Anchor State Bank in Anchor, Illinois, “Recent weakness in grain prices and increases in inputs have caused area farmers to 'pull in their horns'."

Banking: The January loan-volume index decreased to 55.4 from last month’s 61.0. The checking-deposit index declined to 55.5 from December’s 64.7, while the index for certificates of deposit and other savings instruments dipped to 42.3 from 46.4 in December.

Hiring: Despite weaker crop prices and pullbacks from businesses with close ties to agriculture and energy, Rural Mainstreet businesses continue to add workers to their payrolls, but at a slower pace. The hiring index decreased to 51.2 from 54.9 in December.

“Rural Mainstreet businesses hired additional workers for the month as businesses not linked to farm and energy added jobs,” said Goss.

Confidence: The confidence index, which reflects expectations for the economy six months out, slumped to 29.4 from 39.8 in December, indicating a very pessimistic outlook among bankers. “Bankers see few factors pointing to improvements for the Rural Mainstreet economy,” said Goss.

This month bankers were asked to identify the greatest economic threat to community banks for 2016. Half of the bank CEOs identified rising regulatory costs as the biggest challenge to community banks over the next year. According to Pete Haddeland, CEO of the First national Bank in Mahnomen, Minnesota, “Our regulatory costs now exceed $200,000 per year for compliance/audit.”

Furthermore, only 28.3 percent of bankers expect an additional Federal Reserve rate hike in the first half of 2016 and 15.3 percent anticipate no Fed rate hikes in 2016.

Home and retail sales: The January home-sales index plummeted to 43.3 from 55.0 in December. The January retail-sales index plunged to 32.7 from 51.2 last month. “Much like national home market and retail sales, the Rural Mainstreet housing market experienced a very tough month and retailers experienced a downturn in sales for January,” said Goss.

Each month, community bank presidents and CEOs in nonurban agriculturally and energy-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 survey is supported by a grant from Security State Bank in Ansley, Neb. 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, 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. Goss and Bill McQuillan, former chairman of the Independent Community Banks of America, created the monthly economic survey in 2005.

Colorado: The state’s Rural Mainstreet Index (RMI) sank to 37.1 from 46.3 in December. The farmland and ranchland price index fell to 17.2 from December’s 20.9. Colorado’s hiring index for January rose to 51.9 from December’s 51.1. Illinois: The January RMI for Illinois declined to 33.6 from 39.8 in December. The farmland-price index fell to 19.9 from December’s 24.8. The state’s new-hiring index slipped to 49.2 from last month’s 52.6.

Iowa: The January RMI for Iowa sank to 38.2 from December’s 40.8. Iowa’s farmland-price index for January increased to 36.0 from 32.1 in December. Iowa’s new-hiring index for January dipped slightly to 55.1 from 55.2 in December.

Kansas: The Kansas RMI for January plunged to 33.9 from December’s 39.2. The state’s farmland-price index for January expanded to 36.0 from December’s 24.7. The new-hiring index for Kansas declined to 49.5 from 52.2 in December.

Minnesota: The January RMI for Minnesota slumped to 35.5 from December’s 37.0. Minnesota’s farmland-price index increased to 18.2 from 17.8 in December. The new-hiring index for the state slipped to 48.6 from last month’s 50.0.

Missouri: The January RMI for Missouri dipped to 35.0 from 38.6 in December. The farmland-price index advanced to a still very weak 30.5 from December’s 22.6. Missouri’s new-hiring index expanded slightly to 53.0 from December’s 51.8.

Nebraska: The Nebraska RMI for January slumped to 35.0 from 36.3 in December. The state’s farmland-price index grew to 19.8 from December’s 12.3. Nebraska’s new-hiring index increased to 49.2 from 48.0 in December.

North Dakota: The North Dakota RMI for January slumped to a regional low of 17.3 from December’s 29.8, also a regional low. The farmland-price index sank to 11.2 from 20.0 in December. North Dakota’s new-hiring index declined to 21.3 from December’s 30.0.

South Dakota: The January RMI for South Dakota fell to 39.0 from 44.3 in December. The farmland-price index sank to 43.0 from 45.3 in December. South Dakota's new-hiring index sank to a healthy 57.6.

Wyoming: The January RMI for Wyoming plummeted to 32.9 from December’s 43.6. The January farmland and ranchland-price index plunged to 18.7 from 32.0 in December. Wyoming’s new-hiring index slumped to 48.7 from December’s 55.2.

Next month’s survey results will be released on the third Thursday of the month, Feb.18.  

Follow Ernie Goss on Twitter www.twitter.com/erniegoss
For historical data and forecasts, visit our website at:
http://www.creighton.edu/instituteforeconomicinquiry/economicoutlook/
For ongoing commentary on recent economic developments, visit our blog at: www.economictrends.blogspot.com

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