SURVEY RESULTS AT A GLANCE:
Rural Mainstreet Index Remains Strong: Some Bankers Expect
2012 Farm Input Costs to Rise by More than 10 percent
- Rural Mainstreet Index at highest level since June 2007.
- On average agriculture input costs expected to rise by 7.2 percent for 2012.
- Almost one in 10 bank CEOs expect the end of the blender’s tax credit to have significant negative impacts.
- More than one in four bankers indicated that a decline in agriculture commodity prices is the biggest economic challenge for 2012.
For Immediate Release: Jan. 19, 2012
OMAHA, Neb. – The Rural Mainstreet Index (RMI) rose in January and is at its highest level since June 2007.
Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, advanced to 59.8 from 59.7 in December.
Fred Bauer, president of Farmers Bank in Ault, Colo, typified responses from bankers reporting, “Oil and ag income continue to push our area economy up.”
This month bankers were asked what they expected to be the biggest economic challenge for 2012. More than one fourth, or 26 percent, indicated that a decline in agriculture commodity prices represented the largest Rural Mainstreet threat. Another 25 percent and 15 percent indicated that a shortage of jobs and a lack of skilled workers were the greatest 2012 threats, respectively.
Creighton University economist Ernie Goss said, “We are detecting a leveling off in the growth of the Rural Mainstreet economy. While slower global economic growth, higher energy costs, and softer agriculture commodity prices will mean somewhat slower growth for the first few months of 2012, our surveys continue to show healthy growth for the area.” Goss and Bill McQuillan, CEO of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.
According to Pete Haddeland, CEO of the First National Bank in Mahnomen, Minn., “Higher fuel costs have a bigger impact on rural communities than urban areas. The double whammy of high gas costs and high heating fuel cost is being felt.”
Farming: After rising to a record level for December, the farmland price index fell to a still healthy reading for January. The index for January sank to 74.3 from 84.1 in December. This is the 24th straight month the index has been above growth neutral. The farm equipment sales index slipped to 72.3 from 73.8. “Very healthy farm income has encouraged farmers to purchase new equipment and to expand operations. This has pushed up farm land prices at rates that are, in my judgment, unsustainable in the long run. Air will come out of the farmland price bubble when agriculture commodity prices soften in the months ahead,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.
Kathy Thuman, president of Farmers State Bank in Maywood, Neb. “Our bank is monitoring land sales carefully, aware that another real estate bubble may be forming, and concerned that it may burst.”
Bankers reported on likely outcomes from the end of the blender’s tax credit for corn-based ethanol at the end of 2011. Almost one in 10, or 9 percent, expect the termination of the credit to have significant negative impacts on the Rural Mainstreet economy. However, a majority, 51 percent, anticipate that the ending of the tax credit will have a modest negative economic impact. The remaining 40 percent expect only slight or no negative impacts. None of the bankers reported a positive impact due to the expiration of the credits.
Banking: The loan volume index for January slumped to 45.5 from December’s 50.8. The checking deposit index dipped to 68.2 from December’s 68.9, while the index for certificates of deposit and other savings instruments moved to a weak 47.8 from 37.0 in December. “Farmers have used their very strong 2011 earnings to pay down loans. This has been and will continue to be both a negative and a positive,” said Goss.
For example, Thuman, president of Farmers State Bank in Maywood, Neb., Reported, “Farmers are using their profits to pay down debt, which is what we've been advising them to do.”
On the other hand, Larry Rogers, president of the First Bank of Utica in Utica, Neb., said, “Community Bank earnings are affected by loan volume. If farmers pay down debt substantially, which might happen, some community banks could suffer.” Rogers points out that this action could have a negative impact on the community.
Hiring: January’s hiring index declined to 51.5 from 54.6 in December. “Year over year job growth for Rural Mainstreet communities is approximately 1 percent compared to 0.8 percent for urban areas of the region,” said Goss.
Confidence: The economic confidence index, which reflects expectations for the economy six months out, sank to 56.1 from December’s 61.8. “Difficulties in Europe and potential conflicts with Iran combined to push economic confidence lower,” said Goss.
However, global economic volatility continues to influence the outlook. For example, Dale Bradley, CEO of Citizens State Bank in Miltonvale, Kan., reported that both state and national economies remain unstable and volatile.
Home and retail sales: For a sixth straight month, the Rural Mainstreet home sales index stood below growth neutral at 49.2, though it was up from December’s weak 46.2. The retail sales index for January plummeted to 51.5 from December’s record high 61.6. “Very healthy farm income has not produced any significant upturn in retail sales as Rural Mainstreet retailers see only modest upturns,” said Goss.
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.