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Rural Mainstreet economy slows with equipment sales

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Photo by Lisa Brooke.

The Creighton University Rural Mainstreet Index for May rose slightly from April’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, which ranges between 0 and 100, climbed to 49.0 from 46.0 in April.

“The stronger U.S. dollar continues to be a drag on the Rural Mainstreet economy,” said Ernie Goss, Ph.D., Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business, Omaha, Nebraska. “The strong U.S. dollar has made U.S. goods, especially agriculture and energy products, less competitively priced abroad. This has dampened farm income and the Rural Mainstreet economy.”

Farming and ranching: The farmland and ranchland-price index for May climbed to 39.7 from April’s 33.4. “However, this is the 18th straight month the index has moved below growth neutral,” said Goss. “But according to banker comments, there is great deal of variation across the region with many areas continuing to experience strong demand for farmland with little deterioration in farmland prices.”

Jeff Bonnett, president of Havana National Bank in Havana, Illinois, said, “Although it is very true that commodity prices are too low to support current year farm operations, the idea of plummeting farmland values has no merit in our area. We have a recent example of a 240 acre irrigated piece in the southern part of our county that sold for $9,450 an acre.”

The May farm equipment-sales index fell to a record low of 12.5 from 15.6 in April. The index has been below growth neutral for 22 straight months.

“With farm income expected to decline for a second straight year, farmers remain very cautious regarding the purchase of agricultural equipment,” said Goss.

Banking: The May loan-volume index soared to 79.6 from 69.0 in April. The checking-deposit index sank to 43.8 from April’s 50.1, while the index for certificates of deposit and other savings instruments increased to 39.7 from April’s 38.0.

This month, bank CEOs were asked to identify the greatest economic challenge to banking operations over the next five years. Approximately, 45.8 percent of the bank CEOs named rising regulatory costs as the top threat to their bank’s profitability. More than one in five, or 20.8 percent, indicated growing competition from Farm Credit and credit unions represented the greatest threat over the next five years.

Approximately 10.4 percent and 8.3 percent identified slow growth and farm foreclosures, respectively, as the No. 1 challenge to their bank’s profitability over the next five years. The remaining 14.9 percent named other factors challenging their operating income over the next five years.

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. The May hiring index rocketed to 61.5 from April’s much lower, but solid 54.2.

“Rural Mainstreet businesses continue to hire additional workers. While the rate of new hiring is healthier in urban areas of each state, Rural Mainstreet communities are growing jobs at a solid, but slower pace,” said Goss.

Confidence: The confidence index, which reflects expectations for the economy six months out, sank to 41.5 from 47.0 in April.

“The impact of the avian flu had a clear and negative impact on the outlook of bankers in the region,” said Goss. “We asked bankers about the fallout from the avian flu outbreak. Almost one in five of the bankers, or 18.7 percent, reported negative impacts from the outbreak.

“However, almost one-half, or 48.9, expect negative impacts from the bird flu if it should spread to their area.”

Home and retail sales: The May home-sales index jumped to 66.0 from April’s 58.2. The May retail-sales index increased to a weak 49.0 from 44.0 in April.

“We have yet to measure any upturn in retail sales stemming from the downturn in fuel prices,” 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, Nebraska.

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index covers 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300 people. 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.

State reports

Colorado: After rising above growth neutral for 11 straight months, Colorado’s Rural Mainstreet Index has declined below the 50.0 threshold for the last four months. The RMI improved to 47.7 from April’s 43.0. The farmland and ranchland-price index advanced to 50.9 from April’s 35.6. Colorado’s hiring index for May advanced to 62.4, from 50.5 in April.

“Recent rains have changed our outlook for the better,” Dale Leighty, CEO of First National Bank of Las Animas said.

Iowa: The May RMI for Iowa advanced to 52.1 from April’s 45.4. Iowa’s farmland-price index for May climbed to 52.3 from April’s 42.1. Iowa’s new hiring index for May jumped to 62.9 from April’s 55.7.

Kansas: The Kansas RMI for May dipped to 47.5 from April’s 49.2. The state’s farmland-price index for May fell to 33.9 from April’s 57.1. The new hiring index for Kansas declined to 55.6 from 67.7 in April.

“Twenty tornadoes in one night. Devastating but no lives lost,” Michael Johnson, CEO of the Swedish American Bank in Courtland, Kansas, said. “(It is) amazing to see how our communities pull together to help their neighbors when all is lost.”

Minnesota: The May RMI for Minnesota rose to 50.1 from April’s 45.2. Minnesota’s farmland-price index increased to 42.0 from 32.4 in April. The new hiring index for the state climbed to 58.8 from April’s 47.9.

Missouri: The May RMI for Missouri grew to 48.0 from 41.8 in April. The farmland-price index for May rose to 36.2 from April’s 16.3. Missouri’s new hiring index soared to 56.5 from April’s 35.1.

Nebraska: The Nebraska RMI for May increased to 47.8 from 45.7 in April. The state’s farmland-price index slipped to 39.0 from 39.4 in April.

Nebraska’s new-hiring index grew to 57.6 from April’s 53.1.

“Because of the benefits of raising seed corn, we are somewhat insulated from the effects of falling grain prices,” said Larry Rogers, executive vice president of First Bank of Utica, Nebraska.

South Dakota: The May RMI for South Dakota expanded to 50.5 from April’s 44.1. The farmland-price index for May expanded to 44.5 from April’s 32.1.

South Dakota’s new hiring index rose to 59.8 from 47.6 in April.

Wyoming: The May RMI for Wyoming advanced to a weak 48.2 from last month’s 44.3. The May farmland and ranchland-price index expanded to 42.3 from April’s 35.8. Wyoming’s new hiring index increased to 59.2 from April’s 49.2.

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