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Oct. 23, 2012 Source: Creighton University Business School After experiencing negative fallout from drought conditions over the last 3 months, the Rural Mainstreet economy soared higher according to the October survey of bank CEOs in the 10-state area. Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, rose to a solid 56.6 from September's weak 48.3. It was the first time since June that the index rose above growth neutral. Creighton University economist Ernie Goss said, "Our survey indicates that the negative impacts of the drought are being more than offset by the positives of very strong incomes from high agriculture and energy prices." Farming: The farmland-price index soared higher. The October reading climbed to 71.7, its highest level since March of this year from September's 61.6. This is the 33rd consecutive month that the farmland-price index has risen above growth neutral. "Except for a brief period this summer, farmland prices have expanded at a pace that, in my judgment, depends too heavily on high agriculture commodity prices and record low interest rates. The farm-equipment-sales index expanded to 60.5, its highest level since May of this year, and was up dramatically from September's growth neutral 50.0," said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton. Crop yields are down across the region with almost 70 percent of bankers indicating that 2012 yields will be lower than 2011's. Approximately 18.8 percent of bank leaders are reporting 2012 yields are up from last year. Banking: After expanding for seven straight months, loan demand unexpectedly plummeted for the month. The loan-volume index sank to 44.2 from September's 70.2. The checking-deposit index advanced to 66.7 from September's 48.3, while the index for certificates of deposit and other savings instruments rose to an anemic 42.0 from 38.4 in September. "The 2012 drought failed to increase the demand for loans from farming and nonfarming organizations in the region," said Goss. Hiring: October's hiring index expanded to a tepid 51.5 from 50.9 in September. "Hiring for Rural Mainstreet businesses is growing but at a snail's pace. Bankers report that uncertainty surrounding healthcare reform, the elections and the 'fiscal cliff' are restraining hiring even as the economy expands," said Goss. Confidence: The confidence index, which reflects expectations for the economy six months out, increased to a weak 50.7 from September's 43.0. "As the Rural Mainstreet economy turned upward for the month, so did bankers' outlook. The turnaround in the housing market is an important factor boosting economic confidence," said Goss. This month we asked bankers whether they expected the U.S. to suffer an economic recession in 2013. One in four bankers think a recession is likely or very likely next year. On the other hand, almost one-third, or 30.8 percent, of bank CEOs think a 2013 recession is unlikely, or very unlikely. The November elections are seen as very important for some in terms of clouding the outlook. Casey Regan CEO of Premier Bank in Farmington, Minnesota said, "Forecasting how things will look in 2013, especially business owner sentiment, will depend greatly on the results of what happens on the first Tuesday of November." Midhel Johnson, CEO of Swedish American State Bank in Courtland, Kan., said, "The recession question I believe will hinge on the November election." Dale Bradley, CEO of The Citizens State Bank, in Miltonvale Kan., like many other bankers expressed concerns about the potentially large impact of the record tax increase slated to go into effect on January 1, 2013 and its negative impact on the economy. Home and retail sales: The October home-sales index advanced to a healthy 59.8 from September's 58.8. The October retail-sales index increased to a still weak 48.6 from 42.9 in September. "As in the national economy, the Rural Mainstreet housing market is improving. On the other hand, the drought appears to be having negative impacts on Rural Mainstreet retail buying," said Goss. Despite the upturn in the Rural Mainstreet economy and rising confidence, bank CEOs expect holiday sales to grow by only 2.3 percent from last year. More than one-fourth of the bankers, or 27.9 percent, expect either no change or a downturn in retail sales from last year. Tweet |
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