Mainstreet Economy Slows for June

Mainstreet at a Glance:

*Economies of the non-urban, agriculturally dependent portions of the eight-state area weakened for the month.

*Hiring in rural areas was solid for the month with Wyoming, Colorado, Nebraska, South Dakota, Missouri, Iowa and Illinois showing gains, Bankers in Kansas reported job losses.

*More than two-thirds of the bankers expect the Federal Reserve to raise rates at their June 28/29 meetings.

*42 percent of bankers believe recent Fed rate hikes have hurt their area economies.

*More than 58 percent of the bankers expect drought conditions to negatively affect their area economy.

The Mainstreet Economy Survey for June indicates that the economies of the non-urban, agriculturally dependent, portions of the eight-state survey area weakened from May. As in past months, retail sales remained weak across non-metro areas in the region that includes Colorado, Illinois, Iowa, Kansas, Missouri, Nebraska, South Dakota and Wyoming.
Each month community bank presidents and CEOs are surveyed regarding current economic conditions in their area and their projected economic outlook six months down the road.
Bank presidents and CEOs in the region reported contracting economic conditions as the overall index declined to 46.7 from May’s solid 54.5, and below growth-neutral 50.0.

http://www.outlook-economic.com/MainstreetEconomy.html

Bankers continue to detail weak retail sales with large national retailers draining sales from smaller and local sellers. “The Wal-Mart effect continues to drive main street businesses in rural America out of business--it has been devastating,” said McQuillan.

Farm land prices continue to grow, say the bankers, with a June reading of 61.3, up from May’s index of 60.9. “We had a quarter of dryland sell within 20 miles of Courtland (KS). It brought $2,750 an acre - unheard of for our area,” reported Michael Johnson, President of Swedish American State Bank in Courtland, Kan.

“Due to the higher costs associated with irrigation, dryland continues to expand at a faster pace than irrigated land,” said Goss. For June, 58.1 percent of the bankers expect drought conditions to negatively impact their local economies. “Weather conditions will have the most significant impact on our local economy,” said Craig Brewster, CEO of Butte, Neb., State Bank. “Drought severity has increased, causing anxiety in all areas of commerce,” said John Nelson, President of First Tier Bank in Holdrege, Neb.

Home sales remained weak in the eight-state area with a June reading of 43.5, down from May’s 45.5. However, the lack of available homes continues to hurt sales. Kurt Henstorf, President of the First National Bank in Shenandoah, Iowa, said, “The biggest problem facing us right now is housing, especially in the middle range of prices.”

Loan volume was strong for the month with an index of 61.3 as farmers turn to local banks. “It appears that input costs for our agriculture customers are up at least 10 percent over cash flow projections. Many of our customers are asking about additional borrowings to cover these costs,” said CEO James Brown of Hardin County Savings Bank in Eldora, Iowa.
Not surprisingly, farm equipment sales dropped below 50.0 for the third straight month to 42.9 from May’s tepid 43.5.

Hiring in the rural areas remained strong with a 56.5 reading, but down from May’s 62.1. Higher energy prices pushed Colorado and Wyoming hiring up dramatically while bankers in Illinois, Iowa, Missouri, Nebraska and South Dakota reported solid new hiring. Only bank CEOs in Kansas indicated weak job growth. Job gains associated with ethanol production continue to be important, particularly in rural portions of Illinois, Iowa and Nebraska.

Bankers were much less positive about the economy down the road as the confidence index dropped to 43.5. The confidence index gauges the economic outlook six months from June with an index above 50.0 pointing to a growing economy. Much of the pessimism can be traced to higher interest rates. Nearly 42 percent of the bankers believe that the sixteen rate hikes over the past two years are hurting their economies. Furthermore, 67.7 percent of the CEOs expect the Federal Reserve to raise short-term interest rates at their next meeting on June 28/29.

EPG