June Survey Results at a Glance:
* Area economy remains strong, but growth down from May
* Home sales rise to highest level since survey began in 2005
* Approximately 45 percent of bank CEOs strongly support limitation on federal farm support
* Only 20 percent of bankers see immigration as a strong, positive growth factor for Mainstreet
The Mainstreet economic index from the June survey of bank chief executive officers (CEOs) in non-urban, agriculturally dependent portions of a nine-state area declined for a third consecutive month. Despite the decline, the index continues to indicate significant growth with healthy new hiring across the region. Agricultural land-price growth weakened from May but remains strong.
Each month, community bank presidents and CEOs are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.
As in prior months, strong farm income and biofuel production has created growth. According to Dale Torpey, president of Federation Bank in Washington, Iowa, “Our biodiesel plant is ready to go online with approximately 25 new jobs. Crops also look very good.”
"Bank presidents and CEOs in the region reported very healthy business activity for June but, with growth somewhat slower than last month, as the overall economic index dipped to 61.4 from May’s 66.4. A reading of 50.0 is growth neutral. Thus, June’s index indicates brisk growth with the reading well above last June’s 54.5.
Higher fuel costs and short-term interest rates trimmed some of the growth associated with ethanol production and high farm income. Bankers report that higher interest rates have adversely impacted residential construction, slowing growth in the Mainstreet economy.
“Short term interest rates are too high, based on the historic spreads between the three-month and 30-year U.S. Treasury bonds,” said Bruce Morgan, CEO of Valley State Bank in Roeland Park, Kan.
Despite higher interest rates and fuel costs, bankers’ economic confidence for the next six months remained high at 65.5, although it was down slightly from May’s 66.4. Strong hiring is certainly a factor driving confidence higher as Mainstreet added jobs at a healthy pace in June with a hiring index of 61.9, though down significantly from May’s record 68.3. Mainstreet job growth is currently running at an annualized rate of 2.0 percent or almost double the historical average.
This month, bankers were asked to gauge the importance of immigration and limitations on federal farm support payments to the Mainstreet economy. Only 20 percent of bankers concluded that immigration had strong and positive impacts. On the other hand, 40 percent strongly disagreed that immigration had a strong positive impact on the Mainstreet economy. Regarding a federal farm bill that supports a $250,000 per farm limitation on subsidy payments, 45.5 percent strongly agreed and only 15.9 percent strongly disagreed to the limitation.
While the downturn in the housing sector and problems associated with sub-prime loan defaults have riddled the national economy, the home-sales index for Mainstreet stood at 53.4, up from 50.8 in May. However, bankers closer to metropolitan areas report difficulties associated with housing.
According to Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, “New home construction continues at a steady pace, but sales have slowed moderately, compared to last year at this time with it becoming more of a buyer’s market.”
Retail sales growth once again turned negative with a retail sales index of 48.2 for June, down from May’s 50.8. Higher fuel costs continue to cut into retail sales in the region.
Bank indicators for June were strong and indicative of an expanding Mainstreet economy. Loans rose to 78.1 from May’s 75.4, checking deposits declined to 58.8 from 62.3 in May, and certificates of deposit dipped to 61.4 from May’s 71.3.
Ernie Goss
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