Saturday, August 19, 2006

Mainstreet Slows for August

* Economies of the non-urban portions of the eight-state area expanded, but at a slow pace
* Hiring in rural areas was weak with most states showing slow gains
* Bankers’ economic outlook six months out has deteriorated significantly
* Only 24 percent of the bankers expect the Federal Reserve to raise rates at its next meeting
* Approximately 36 percent of bankers expect ethanol production to have a significant and positive impact on their local economy in the second half of 2006

The Mainstreet Economy Survey for August indicates that the economies of the non-urban, agriculturally dependent portions of the eight-state area expanded from July according to the latest Mainstreet Bankers survey. However unlike July, bank CEOs reported no growth in employment 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. To see full results go to:

Bank presidents and CEOs in the region reported expanding economic conditions as the overall index rose above growth neutral 50.0 to 51.4, but down slightly from July 51.6. Recent rainfall has brightened the outlook for farm income. “Crops are in excellent condition. We could be looking at record yields. We had plenty of rain in July and so far in August. It could be a very good year for our farmers,” said Dale Torpey of Federation Bank in Washington, Iowa. According to McQuillan, ethanol production is expected to increase the price of corn by five cents per bushel in his area which is within 30 miles of a large ethanol plant. Approximately 36 percent of the bankers also expect ethanol production to have a positive and significant impact on their local economies for the rest of 2006.

“With construction scheduled to begin in August on a large ethanol plant, we will have an influx of workers. This will help the short-term economy in the area of housing and services. Long term the plant will employee 50-55 full time employees. This should also speak well to a longer term upward economy,” said Jim Bohart of Harvard State Bank in Harvard, Neb.
Bankers continue to detail weak retail sales with higher energy prices and interest rates reducing retail sales as the retail sales index rose to a weak 43.1 from July’s even weaker 35.5. At least to some degree, large “big-box” retailers are hurting smaller Mainstreet retailers. “Unfortunately Mega Walmarts within 40 miles of our community continue to decimate our Main Street Businesses,” said McQuillan.

Farm land prices continue to grow with an August reading of 57.1, up from July’s 55.0.
Home sales remained weak in the eight-state area with an August reading of 30.9, the lowest index for the year, and down from July’s 37.1.

Next month’s survey results will be released on the third Thursday of the month, September 21.


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