Monday, February 27, 2006

Community Bank CEOs Report Weak Non-Urban Economy

The second survey of the Mainstreet Economy completed in February, indicates that the non-urban, agriculturally dependent portions of the seven-state survey area contracted for the month with weak retail sales, but with strong farmland prices and solid agriculture income.

The overall index declined to 48.1, just below growth neutral 50.0, from January’s 53.3.
Last month, we at Creighton University began surveying Chief Executive Officers of community banks in seven states to gauge the pulse of the "Mainstreet Economy." Each month community bank presidents and CEOs will surveyed regarding current economic conditions in their area and six months down the road. Bank presidents and CEOs in the region, which includes the rural and non-urban portions of Colorado, Iowa, Kansas, Missouri, Nebraska, South Dakota and Wyoming, expect the Mainstreet economy to continue to grow, albeit at a slow pace, over the next six months, as the confidence index stood at a tepid 51.9, and down slightly from January’s 53.3.

John Nelson, CEO of First Tier Bank in Holdrege, Nebraska reported higher energy prices and a possible drought are having an impact. "Cattle producers showed profits, grain farmers with contracts or hedges made small profits, strictly cash producers lost. Mainstreet is lack-luster due to high energy prices and drought concerns,” said Nelson.

The bankers in our survey reported economic weakness across the board for February with readings of 28.8 for retail sales, 44.0 for new hiring and 38.5 for home sales. In this survey we asked questions about 2005 farm income. The CEOs detailed strong crop income and solid income from cattle operations for 2005. Consistent with other government reports, bankers indicated that expenses for crop farming were up sharply for 2005. As in January, CEOs reported a brisk, upward trend in farmland prices with an index of 72.0, virtually unchanged from January’s 71.0.

David Steffensmeier, president of First National Bank in Beemer, Nebraska said, “We are located eight miles from West Point, Neb., which just received word of the closing of the Tyson packing plant south of West Point. Three hundred plus employees are out of work. I am uncertain of the total impact, but it will be unpleasant for a sometime.”

In terms of February banking conditions, loan volume was strong at 73.1, but with downturns in both checking deposits and savings deposits at 42.3 and growing loan deficiencies with a reading of 53.8. We are certainly detecting some of the negative fallout from higher energy prices and short term interest rate as bankers report strong upward pressures on farm expenses. As in January, the Mainstreet economy relative to the urban economy was strongest in Colorado, Iowa, Kansas and Missouri. On the other hand, Mainstreet businesses in Nebraska, South Dakota and Wyoming were experiencing somewhat weaker economic growth than their urban counterparts.


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