Survey: Rural Economy Still in Slump

By Beacon Staff

OMAHA – The rural economy continues to falter with a significant pullback in new hiring, according to the August survey of bank CEOs in 11 Midwestern and Plains states.

The Rural Mainstreet Index, which ranges between 0 and 100, plunged to a record low of 38.9, down from July’s 41.4.

In August 2007, the index was 57.4.

The decline is indicative of the slipping economic fortunes for rural businesses even as farm income remains strong. The agriculture equipment sales index has declined every month in 2008, with the August reading of 56.8 down from July’s 62.3.

“It is clear that, even as farm income remains strong, rapid increases in input costs are slowing the growth in farm-equipment sales,” said Creighton University economist Ernie Goss.

Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey of rural bank CEOs in 11 states: Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota and Wyoming.

The average community population covered by the survey is about 1,300.

“It seems that, other than necessary living expenses, delaying the purchase of equipment, sale of grain, or the purchase of other items, is the choice of the day,” said Jim Caspary, president of First Trust Holding in Watseka, Ill.

This month, 55.9 percent of bankers reported improving crop conditions from last month.

“The general consensus is that we should have the best overall crop production in 30 years. We received rain when it was needed,” said Joe Kennedy, CEO of First National Bank in Frankfort, Kan.

Despite improving crop conditions, good farm income and little fallout from the national housing market downturn, the new-hiring index for August indicated a loss of jobs with a record-low reading of 36.5. This is the eighth consecutive month that the index has been below growth neutral, due in part to escalating energy prices and higher farm input costs.

A cooler rural economy has not significantly dented the growth in farmland prices.

The August farmland-price index rose to a healthy 65.6 from 61.6 in July.

Almost 56 percent of the bankers reported an improvement in crop conditions, with slightly less than 7 percent indicating that crop conditions had deteriorated.

Even with federal rebate checks, retail sales remained very weak with an August reading of 33.9, down from July’s 35.1.

“However, we may see improvement in this index in the months ahead,” Goss said. “Over 44 percent of the bankers reported that consumers, as a result of higher energy prices, were encouraged to shop locally. Slightly less than 12 percent disagreed with this linkage,” said Goss.

The national economic downturn and the housing depression are showing up in rural areas. The August home-sales index expanded to 31.0 from July’s very weak 25.4.

Bank indicators worsened for August and were down from this time last year.

Farmers, facing higher input costs, pushed August checking deposits to 50.0 from July<s 53.5, down from August 2007's 76.5.

Additionally, due to farm cash demands, the index for certificates of deposit and other savings instruments was a weak 46.0, up from 43.0 in July but down from last August's reading of 56.6.

At the same time, loan volumes dipped to 49.2 from 56.1 in July, and significantly lower than last year's August reading of 76.5.