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Nov. 28, 2012 Source: Creighton University After experiencing negative fallout from drought conditions in June, July and August, the Rural Mainstreet economy expanded for a third consecutive month according to the November survey of bank CEOs in a 10-state area. Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, climbed to a solid 57.5 from October's 56.6. Creighton University economist Ernie Goss said, "Our survey indicates that the Rural Mainstreet businesses are shedding the negative impacts of the 2012 drought. However, given the continuing lack of moisture across much of the region, this economic respite may be short-lived." But national issues are also playing a role. According to Dale Bradley,CEO of The Citizens State Bank, in Miltonvale Kan., "The biggest (economic) issue we face soon is the fiscal crises with a locked up Congress." Farming: The farmland-price index took its biggest one month jump since we began the survey in 2005. The November reading soared to 83.9 from 71.7 in October. This is the 34th consecutive month that the farmland-price index has risen above growth neutral. "Farmland prices and cash rents are soaring at what I believe are unsustainable paces. For example, last month there was an auction of cash rent contracts in southeast Nebraska. Contracts went for a record $550 per acre per year for non-irrigated land. Right now we are seeing cash rents and farmland priced for perfection. Land prices and cash rents will be heavily dependent on 2013 drought conditions, agriculture commodity prices and interest rates. Any of these three factors could be a significant issue or problem for the Rural Mainstreet economy in the months and years ahead," said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton. This month bankers were asked how much they expected 2013 pasture cash rents to rise as a result of the drought. Overall a 10.1 percent increase is expected. However, 12.5 percent of the bankers anticipate growth of more than 21 percent for 2013. In terms of the ethanol industry, moreover, 69.7 percent of the CEOs indicated that high corn prices represented the biggest challenge for ethanol producers in the region in the coming year. Another 16.6 percent think government policy toward ethanol represents the industry's biggest challenge for 2013. The farm-equipment-sales index slipped to 60.4 from October's 60.5. Banking: After plummeting for October, the loan-volume index expanded to a still weak 47.8 from October's 44.2 but well down from September's 70.2. The checking-deposit index advanced to 75.1 from October's 66.7, while the index for certificates of deposit and other savings instruments rose to an anemic 45.5 from 42.0 in October. "Despite the 2012 drought, farming and non-farming businesses have remained financially healthy with solid cash balances," said Goss. Hiring: November's hiring index expanded to 53.0 from 51.5 in October. "Hiring for Rural Mainstreet businesses is improving albeit at a slow pace. The uncertainty surrounding drought conditions 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, sank to 45.6 from October's tepid 50.7. "The uncertainty surrounding the national economy including the "fiscal cliff," the farm bill, and energy policy are negatively affecting the economic outlook of bankers," said Goss. The national elections continue to have impacts. As stated by Jeff Bonnett, president of Havana National Bank in Havana, Ill., "There are election blues in this area of the state." This month bankers were also asked whether the wind energy tax credit, slated to end on Dec. 31, 2012, should be continued. Approximately 41.8 percent of bank CEOs support ending the tax incentive while 49.2 advocate for renewing it. The remaining 9 percent support increasing the level of the incentive. Home and retail sales: The November home-sales index advanced to a healthy 62.0 from 59.8 in October. The November retail-sales index increased to a tepid 51.5 from October's even weaker 48.6. "Much like the national retail sales numbers that came out this week, Rural Mainstreet businesses are experiencing lackluster sales. At the same time, the Rural Mainstreet housing market is improving rapidly with record low interest rates and a slowly improving job market," said Goss. Tweet |
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