March Survey Results at a Glance
*Rural Mainstreet index soars to highest level in almost two years.
*Farm and ranch land index expands above growth neutral for second straight month.
*Largest economic challenges for ethanol production; 30 percent listed lack of government incentives while 24 percent indicated the availability of venture capital funds.
*Approximately 60 percent of bankers expect requirements for escrow of insurance and taxes on residential loans to reduce housing loans in 2010.
OMAHA, Neb. – For the sixth time in the past seven months, the overall index for the Rural Mainstreet economy rose, but it continues to remain below growth neutral, according to the March survey of bank CEOs in a 10-state region.
The Rural Mainstreet Index (RMI), which ranges between 0 and 100, soared to 47.4 from February’s 36.6. The reading is more than double the 18.7 recorded for March of 2009. A reading of 50.0 is considered growth neutral.
“The RMI has remained below growth neutral for 25 consecutive months. However, over the past several months, the RMI has been trending upward. We can safely say that the negatives are getting decisively less negative as the farming and ranching economies improve. Even so, economic conditions are weaker in the rural areas than in the urban areas of the region as the softer 2009 farm economy continues to work through Rural Mainstreet businesses in the region,” 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 farmland-price index moved above growth neutral for a second straight month to 58.2 from 52.8 in February. For the next six months, almost one in four, or 24 percent, of the bankers expect farm and ranch land to decline in value while 14 percent expect farm and ranch land to increase in price.
On the other hand, the farm equipment-sales index slipped to 41.4 from February’s 42.4. Prior to February of this year, both farmland price growth and farm equipment sales had been slipping. “I expect farm equipment sales to pick up as the farm and ranch economies improve in the months ahead,” said Goss.
This month bank CEOs were asked to identify how the new Regulation Z, which requires the escrow of real estate taxes and insurance for residential real estate, will affect their lending. More than 60 percent of the bank CEOs expect to reduce the number of housing loans due to this regulation. However, Joe Conover with Northwest Bank in Okoboji, Iowa, expects little impact from Regulation Z since it will apply only to high-priced houses.
Jeffrey Gerhart, CEO of the Bank of Newman Grove in Newman Grove, Neb., argues that banks need to be watching current banking legislation before Congress for negative impacts on rural banks and the communities they serve.
Contrary to recent months, loan-volumes improved significantly to 55.2 from February’s weak 43.7. For March, the checking-deposit index climbed to 56.2 from 52.8 in February. The index for certificates of deposit and other savings instruments expanded to 54.4 from 50.9 in February.
Hiring in rural areas has yet to bounce above growth neutral. However, the new-hiring index moved higher to 45.7 from February’s 34.8 and January’s 40.1. This was the 27th consecutive month that the index has been below growth neutral. Only 14 percent of bankers said hiring was up from last month. “The Rural Mainstreet economy continues to lose jobs at an annualized rate of roughly 2 percent. While this is well above the rate of job losses for urban areas, the pace of job losses has slowed from the 4 percent pace experienced in previous months,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.
Bank CEO's were also asked about the impact of ethanol production on the Rural Mainstreet Economy. Approximately 27 percent expect ethanol production in their area to expand by more than 10 percent from 2009 levels. More than four in ten bankers anticipate that ethanol production for 2010 will growth by more than five percent. Asked about the biggest economic challenge for ethanol production in their area, 30 percent listed the lack of government incentives as the largest hurdle, while 24 percent indicated that the availability of venture capital funds was the most significant 2010 challenge for ethanol producers.
Tom Boyer, president of Farmers State Bank in Fairmont, Neb. says that his conversations with local ethanol plant managers indicated that their biggest challenge for 2010 would be the lifting of tariffs on imported ethanol from Brazil.
Like much of the nation, retail sales were less than healthy for the month with a February retail-sales index of42.4, which was up dramatically from February’s 32.4.
Just like the recently released national housing data, home sales for Rural Mainstreet were not good for March, though the home-sales index did improve to 46.5 from 37.5 in February.