· Job losses for Rural Mainstreet continue at an annualized pace exceeding 5 percent.
· The Rural Mainstreet Economy has yet to rebound.
· Bankers expect 2009 crop income to be down less than livestock income.
· Over 98 percent of bankers think the nation’s 20 largest financial institutions should pay the cleanup costs related to “too-big-to-fail” policies.
For a third straight month the overall index for the Rural Mainstreet economy expanded, but continued to indicate significant economic weakness, according to the November survey of bank CEOs in an 11-state region.
The Rural Mainstreet Index (RMI), which ranges between 0 and 100, advanced to 38.4 from October’s 37.5 and September’s 36.5. A reading of 50.0 is considered growth neutral.
“The RMI has remained below growth neutral for 21 consecutive months. The decline in farm income related to pullbacks in agricultural commodities from last year continues to weigh on the rural, agriculturally dependent economy,” said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey in 2005.
This month, bankers were asked to compare estimated 2009 farm income from crops and livestock to that in 2008. On average, bank CEOs expect crop income to be flat from last year and project livestock income to be down by 5 percent from last year. “This is a much better outlook than the one provided by the U.S. Department of Agriculture that projects 2009 farm income will be down by almost one-third,” reported Goss.
However, many bankers such as Tom Boyer president of Farmers State Bank in Fairmont, Neb., indicate that it is too early to accurately gauge farm income. Scott Tewksbury, CEO of Heartland State Bank in Edgeley, N.D., said, “Crop income levels are a little hard to judge because of the delayed harvest. November weather has been good, and the harvest of row crops is progressing quickly.”
The downturn in farm income has negatively affected both farmland prices and sales of farm equipment. The November farmland-price index rose to a weak 45.6 from 43.0 in October. This was the 13th straight month that the index moved below growth neutral. The farm equipment-sales index advanced to 39.9 from 36.7 in October. “Farmers are a lot more cautious in their purchases of farm equipment than they were in early 2008,” said Goss.
Recent data indicating that the nation’s jobless rate topped 10 percent had a negative impact on the monthly confidence index, which tracks bankers’ economic outlook six months from now. That index fell to 50.1 from October’s 58.7.
Hiring in rural areas remains well below growth neutral. The new-hiring index rose to 36.3 from 35.6 in October and 27.0 in September. This is the 23rd consecutive month that the index has been below growth neutral, due in part to the national and global recessions and weakening farm income from much lower agricultural commodity prices. “Job losses on an annualized basis are more than 5 percent for the Rural Mainstreet economy. Over the past 12 months, the region that we survey has lost almost 265,000 jobs. Recent surveys indicate that these job losses are likely to continue for the near term,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.
Like much of the nation, retail sales were less than healthy for the month, with an October retail-sales index of 38.5, up modestly from October’s 36.0.
Just like the recently released national housing data, home sales for Rural Mainstreet were not good for November. The November home-sales index slumped to 43.1 from 46.7 in October. But some bankers were more positive. However, according to John Schmaderer, president of Tri-County Bank in Stuart, Neb., “The homebuyer’s tax incentives, combined with low mortgage rates, continue to provide strength to the local housing market.”
This month, bank CEOs were also asked who should pay the added cost of federal financial bailouts related to “too-big-to-fail (TBTF)” policies. Over 98 percent indicated that the cost should be paid by the 20 largest financial institutions in the nation. Less than 2 percent thought the taxpayer, or the overall banking industry, should cover the costs. As expressed by Ken Henstorf, president of First National Bank of Shenandoah, Iowa, “We need to continue differentiating community banks from the TBIF institutions and especially the non-banks in our market.” Henstorf expects TBTF to be a defining issue going forward.
On a related matter, John Nelsen, president of First Tier Bank in Holdrege, Neb., said “We need all banks to participate equally in funding the FDIC assessment, dollar for dollar, with no exceptions. This will prepare us for a failure of one of the TBTF institutions which will surely occur.”
Others such as Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, argue that the TBTF institutions need to be downsized so that they no longer pose a systematic risk to the economy.
Rural Mainstreet bankers say they are getting mixed messages from the federal government regarding lending. The Treasury Department is encouraging increased lending while bank regulatory oversight is negatively affecting lending by the banks. As a result, the November loan-volume index declined to a record low 38.3, down from October’s already weak 42.4.
For November, the checking-deposit index soared to 66.4 from October’s 61.0. The index for certificates of deposit and other savings instruments inched lower to 50.9 from 51.7 in October.
Each month, community bank presidents and CEOs in nonurban, agriculturally and resource-dependent portions of the 11-state area 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, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.