Thursday, October 19, 2006

Mainstreet Economy Expands for October

* Economies of non-urban portions in nine-state area expand to highest level since May 2006.
* Almost 80 percent of bankers report labor shortages are slowing growth on Mainstreet.
* Confidence index advances to its highest level since May 2006.
* Less than 3 percent of bankers say the downturn in the national housing market is negatively affecting Mainstreet economy.

The October survey of the Mainstreet economy shows solid improvement from September activity as reported by bank CEOs in non-urban, agriculturally dependent portions of the nine-state area (North Dakota was added in October.). Each month, community bank presidents and chief executive officers (CEOs) are surveyed regarding current economic conditions in their areas and their projected economic outlooks six months down the road.

"Bank presidents and CEOs in the region reported solid improvements from September activity as the overall index rose above growth neutral 50.0 to 54.4, from September’s 52.6 and August’s 51.4," said Creighton University Economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the economic survey.

Bankers detailed upturns in hiring with an October employment index of 55.9. Bankers in all states except Kansas reported job gains for October. “I think recent weakness in the job market was a hiccup with Mainstreet again adding jobs at a healthy pace. Despite healthy hiring for the month, almost 80 percent of the CEOs reported that a shortage of supply of labor was restraining growth on Mainstreet,” said Goss.

Most bankers expect the Federal Reserve to leave interest rates at their current level when the Open Market Committee meets again Oct. 24-25. The percentage of bankers with recession concerns declined from 27.6 percent in September to 20.6 percent in October. “Bankers are clearly perceiving that the Mainstreet economy is growing and unlikely to experience a recession as upturns in hiring and lower oil prices have buoyed the economic outlook. The Fed’s halt in raising interest rates, lower oil prices and improvements in agricultural commodity prices have pushed confidence higher to a reading of 61.8, its highest level since May of this year. The confidence index tracks bankers’ economic outlook six months out.”

According to Joe Kennedy, CEO of First National Bank in Frankfort Kan., “Higher grain prices have been good for farmers, who had a good harvest.” Bill Anderson, CEO of First State Bank in Hordville, Neb. echoed this and said, “Farmers appear to be taking advantage of high corn prices, assisted by ethanol production.”

Retail sales remain weak with an October reading of 45.6, up slightly from September’s retail index of 43.6. Mainstreet retailers continue to be hurt by large retailers in trade centers pulling customers from a wide outlying area.

Much like the rest of the nation, Mainstreet bankers have reported weak home sales over the course of the last several months. “While the index has climbed two months in a row with an October index of 36.4, up from September’s index of 35.5 and August’s 30.9, it signals a housing market that remains weak. However, only 2.9 percent of the bankers reported that the national housing downturn was negatively affecting the Mainstreet economy,” said Goss.

Accompanying strong agricultural commodity prices have made for a healthy market for farmland with an October price index of 62.1, down from September’s 68.4 but up from August’s 57.1. As in past months, rising commodity prices, expansions in ethanol production and increasing nonfarm demand are pushing farmland prices higher,” said Goss.

Bank indicators were fairly strong with higher commodity prices pushing loan volumes to a still robust 58.8, but down from September’s brisk 76.9. Checking deposits were likewise lower at 58.8, down from September’s 61.5 reading, while certificates of deposit posted a solid 57.4, up from September’s 55.1.

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