Rural Mainstreet Economy Continues to Lose Jobs: CEOs Report Regulators Limit Loans to Farms and Businesses

Survey Results at a Glance
· Rural Mainstreet economy weakens again with job losses.
· Bank lending sank for the month.
· More than half of bank CEO’s report that bank regulators are the reason for reduced farm and small business lending.
· More than 71 percent of bankers say refunded TARP funds should be used to reduce the federal deficit.

For a fourth straight month the overall index for the Rural Mainstreet economy advanced, but continued to indicate significant economic weakness, according to the December survey of bank CEOs in an 11-state region. The Rural Mainstreet Index (RMI), which ranges between 0 and 100, rose to 40.9 from 38.4 in November and 37.5 in October. A reading of 50.0 is considered growth neutral.

“The RMI has remained below growth neutral for 22 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 CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.

The downturn in farm income and the global economic downturn have negatively affected both farmland prices and sales of farm equipment. The December farmland-price index slid to 44.9 from November’s weak 45.6. This was the 14th straight month that the index remained below growth neutral. The farm equipment-sales index rose slightly to 40.4 from November’s 39.9 and October's 36.7. However, there continue to be areas of increasing farmland prices. Dan Coup, CEO of First National Bank in Hope, Kan., reported, “Several land auctions in our area this past month have shown steady to slightly stronger prices.” Coup indicated that local farmers and ranchers, not outside investors, were purchasing the land.

The corn harvest remains significantly behind schedule with 13 percent of the bankers reporting that less than 75 percent of the crops have been harvested.

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. While the index rose to 53.7 from 50.1 in November, it was down from October’s 58.7.

Hiring in rural areas remains well below growth neutral. The new-hiring index sank to 33.4 from November’s 36.3 and October’s 35.6. For December, 5.8 percent of bankers reported an upturn in hiring while 39.1 percent detailed cuts in hiring. This is the 24th consecutive month that the index has been below growth neutral, due in part to the national and global recessions and declining farm income from much lower agricultural commodity prices.

Uncertainly continues to thwart hiring. Richard Hanneken, CEO of MRV Banks in Sainte Genevieve, Mo., said, “Congress’ Health Care Proposals have lots of small business people sitting on their hands on hiring until they see what the costs are going to be.”

“Over the past year, the Rural Mainstreet economy has lost 188,000 jobs, or 3.9 percent of its employment. This pace of job losses is significantly higher than the 3.1 percent pace for the urban areas of the region. I do expect the pace of job losses for the Rural Mainstreet economy to slow in the months ahead,” 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 a December retail-sales index of 43.3 which was up sharply from November’s 38.5. However, weather played an important role in the numbers. According to Jim Stanosheck, CEO of Sate Bank in Odell, Neb., “Two snow storms during the past month have impacted main street business.”

Just like the recently released national housing data, home sales for Rural Mainstreet were not good for December. The home-sales index slumped to 40.4 from November’s 43.1 and October’s 46.7.

This month, bank CEOs were also asked what should be done with Troubled Asset Relief Program (TARP) funds refunded to the U.S. Treasury. More than 71 percent indicated that the funds should be used to reduce the federal budget deficit. Only 15 percent supported using the funds for job creation programs.

Despite the Treasury Department encouraging increased lending, the loan-volume index continues to weaken. The December loan volume index stood at 45.7, up from November’s record low 38.3. This month, bankers were asked to identify factors accounting for weak lending. More than half, or 51 percent, of bank CEOs indicated that bank regulators were the prime factor restricting loan volumes. More than two-thirds, or 35 percent, indicated that weak loan demand was the major factor driving down borrowing by farms and small businesses.

Pete Haddeland president of the First National Bank in Mahnomen, Minn., echoed what bankers reported, “The federal government tells banks to lend to small business, but the regulators don't have the same message.” Dale Torpey, president of Federation Bank in Washington, Iowa said, “We are starting to see the effects of all of the new regulations. Customers do not understand all of the need for the paperwork and do not understand what it all means.” Todd Douglas, First National Bank in Fort Pierre, S.D., said, "recent legislative changes, increased FDIC premiums and rising compliance costs, have slowed lending."

For December, the checking-deposit index advanced to 69.8 from November’s 66.4. The index for certificates of deposit and other savings instruments soared to 59.6 from 50.9 in November.

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.

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 11 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.

Colorado: Colorado’s RMI expanded to 39.8 from November’s 36.9. The December ranch- and farmland-price index sank to 43.8 from 44.1 in November. The state’s Rural Mainstreet loan volume index stood at 44.6 signaling a pullback in lending for the month. Colorado’s Rural Mainstreet economy has lost more than 16,000 jobs over the last year, or 5.0 percent of its Rural Mainstreet employment.

Illinois: The Illinois RMI once again moved below growth neutral. The RMI for December rose to 37.6 from 35.2 in November and 34.4 in October. Farmland prices continue to slump with a December index of 41.6, down from November’s 42.4. The December loan volume index was 42.4, the lowest in the region. Illinois’ Rural Mainstreet economy has lost almost 90,000 jobs over the last year, or 7.3 percent of its Rural Mainstreet employment.

Iowa: Iowa’s RMI remained below growth neutral, according to the monthly survey of bank CEOs. The RMI for December edged higher to 40.7 from November’s 38.0. The farmland-price index was also below growth neutral with a December reading of 44.7, down from 45.2 in November. December’s loan volume index stood at 45.5, indicating weak lending volumes. Iowa’s Rural Mainstreet economy has lost more than 29,000 jobs over the last year, or 3.9 percent of its Rural Mainstreet employment.

Kansas: The Kansas RMI, like much of the region, was below growth neutral 50.0. However, the RMI did expand to 39.0 from 36.9 in November. The farmland-price index dipped to 43.0 from 44.1 in November. The December loan volume index was 43.8. The state's Rural Mainstreet economy has lost more than 30,000 jobs over the last year, or 5.8 percent of its Rural Mainstreet employment.

Minnesota: The state’s RMI climbed to 39.3 from 37.2 in November. Minnesota’s farmland-price index slipped to 43.3 from November’s 44.4. The December loan volume index for the state’s Rural Mainstreet economy was 44.1. Minnesota’s Rural Mainstreet economy has lost more than 36,000 jobs over the last year, or 5.7 percent of its Rural Mainstreet employment.

Missouri: Missouri's RMI for the month grew to 41.7 from November’s 40.0 and October’s 39.2. The December farmland-price index expanded to 45.7 from November’s 44.4. Loans remained weak with an index of 46.5 from December. Don Reynolds, president of Regional Missouri Bank in Salisbury said, “The cost of crop production was high due to excess rain. Yields were better than average and prospects for locking in good prices both for sales and input costs look good for next year.” Missouri’s Rural Mainstreet economy has lost more than 17,000 jobs over the last year, or 3.6 percent of its Rural Mainstreet employment.

Montana: There were too few responses to produce a reliable index. Ken Walsh president of Ruby Valley Bank in Twin Bridges said, “Most of the cow/calf operators have sold calves for the year and prices are well below 2008 levels.” He expects Main street businesses to struggle because of the agriculture prices.

Nebraska: Nebraska's RMI climbed to 42.0 from 39.5 in November. The farmland-price index for December slipped to 46.0 from November’s 46.7. The December loan volume index was 46.8. Despite the weather, Kathy Thuman, president of Farmers State Bank in Maywood, reported, “The corn harvest in southwest Nebraska is going hot and heavy as of Dec. 15, despite 6-8" of snow cover.” Nebraska’s Rural Mainstreet economy has lost more than 9,300 jobs over the last year, or 2.9 percent of its Rural Mainstreet employment.

North Dakota: For a seventh straight month, North Dakota’s RMI was the highest in the region. The December RMI for the state advanced to 52.2 from November’s 50.5. North Dakota's farmland-price index slipped to 50.2 from November’s 51.7. The state’s loan volume index was 51.0 for December. North Dakota’s Rural Mainstreet economy has gained almost 1,000 jobs over the last year, or 0.7 percent of its Rural Mainstreet employment.

South Dakota: The RMI for South Dakota remained below growth neutral with a December reading of 43.1 which was up from November’s 40.6. The state’s farmland-price index dipped to 47.1 from 47.8 in November. South Dakota's loan volume index for December was 47.9. David Callies of Miner County Bank in Howard, said “Excellent crop yields have been and will continue to be a big boost to the local economy.” South Dakota’s Rural Mainstreet economy has lost almost 4,000 jobs over the last year, or 1.8 percent of its Rural Mainstreet employment.

Wyoming: Wyoming's RMI for December expanded to 40.1 from 38.4 in November. The December ranch- and farmland-price index dipped to 44.1 from November’s 45.6. The Wyoming loan volume index for December was 42.4. Wyoming’s Rural Mainstreet economy has lost more than 15,000 jobs over the last year, or 5.9 percent of its Rural Mainstreet employment.

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