Bank CEOs Negative on 2009 Stimulus Package: Report Slower Growth

July Survey Results at a Glance:
· For the first time since April, the Rural Mainstreet index dips below growth neutral.

· Farmland prices and farm equipment sales continue to advance, but at a slower pace.

· Almost two-thirds of bank CEOs expect the current financial reform package to have a negative impact on community banks.

· Only 10 percent of bankers report positive economic impacts from the 2009 stimulus-spending package.

· Bankers expect the lack of hiring to be the biggest economic challenge for Rural Mainstreet over the next 12 months.

After recording an index above growth neutral for two straight months, the overall index for the Rural Mainstreet economy dipped below growth neutral 50.0, according to the July survey of bank CEOs in a 10-state region.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100, sank to 49.3 from 52.6 in June and 54.3 in May.

According to Dale Bradley, CEO of Citizens State Bank in Miltonvale, Kan., “There are many economic bumps in the road before we see progress in the U.S. Economy.”

Creighton University economist Ernie Goss said, “Much like other economic indicators from across the nation, our survey is signaling slowing in economic progress. However, surveys over the past several months show an economy that has improved significantly from last year at this time.” 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 sixth straight month to 52.5, down slightly from June’s 54.7. “The farm economy has clearly improved from last year and we are seeing that reflected in farmland prices. However, the strengthening of the U.S. dollar, which has dented farm commodity prices, has slowed the growth in farmland prices,” said Goss.

Terry Engelken, CEO of Federation Bank in Washington, Iowa, reported, “We are seeing a few farmland sales over $7,000 per acre.”

The farm equipment-sales index slipped to 51.8 from 53.1 in June. “The outlook for farm income for 2010, while still healthy, has softened a bit lately. This has cut into the growth in farm equipment sales,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.

For a fifth straight month, all bank indicators were above growth neutral. The loan-volumes index dipped to 53.1 from June’s 57.9. For July, the checking-deposit index improved to 54.6 from June’s 53.5. The index for certificates of deposit and other savings instruments climbed to 55.4 from 51.8 in June.

This month, bank CEOs were asked to assess the financial reform bill just passed by Congress. Only 29 percent expect it to have a positive influence on community banks while 66 percent anticipate a negative impact on community banks. The remaining 5 percent expect little or no impact stemming from the reform package. Some bankers voiced concern for the consumer. For example, Dan Coup, CEO of the First National Bank in Hope, Kan., said, “The sad part about the whole package is that the consumer will again be the biggest loser.”

Amplifying the negative sentiment for the bill, Barry Linnens, CEO of Cottonwood Valley Bank in Cedar Point, Kansas said, “Our small community banks, did not create this situation. However, we will be the first to step up to the plate and help the local community and economy.” On the other hand, Pete Haddeland, CEO of the First National Bank in Mahnomen, Minn., expects the financial reform package to reduce his bank’s FDIC premiums by 39 percent.

After moving above growth neutral for two consecutive months, the new-hiring index once again sank below 50.0. The July hiring index slumped to 45.4 from 50.9 in June and May’s much healthier 56.1,” said Goss.

Much like other elements of July’s survey Rural Mainstreet retail sales nosedived for July with a reading of 41.7 for July, well off of June’s 52.6. The economic confidence index, which reflects expectations for the economy six months out, slipped to 52.4 from June’s 56.1.

As indicated by Steven Lane, CEO of Security Savings Bank in Farnhamville, Iowa, “People seem to have very little confidence in the economy getting better.”

After two straight months of healthy new home sales readings, the July index plummeted to 41.7 from 56.1 in June and 58.8. “Much like the rest of the nation, residential housing has hit a roadblock,” said Goss.

Each month, community bank presidents and CEOs in nonurban, agriculturally and resource-dependent portions of the 10-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 10 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 for July once again moved below growth neutral to a weak 45.5 from June’s 47.6. The July farm and ranch land price index dipped to 52.1 from June’s 53.7. Colorado’s farm- equipment sales index moved lower to 50.4 from June’s 51.1. The rate of job losses for Rural Mainstreet Colorado over the past 12 months was 2.7 percent.

Illinois: For a third straight month, Illinois’ RMI advanced above growth neutral. The July reading was 53.4, down from June’s 54.6. For a sixth straight month, farmland prices advanced above growth neutral with a July reading of 56.0, down from 57.2 in June. Farm-equipment sales for July dipped to 54.3 from June’s 54.6. Jim Shafer, president of the First National Bank in Tremont, reported that home sales, hiring and the overall economy were all up slightly. The rate of job gains for Rural Mainstreet Illinois over the past 12 months was 1.5 percent.

Iowa: Iowa’s RMI once again climbed above growth neutral with a July index of 52.5, down slightly from June’s 54.2. The farmland- price index dipped to a still healthy 55.6, down from June’s 57.0. The state’s farm- equipment sales index declined to 53.9 from 54.4 in June. Charles Helscher, president of Farmers Savings Bank in Keota, reported that, “In our area, beans look decent and some corn planted in the first planting window appears average at best, but the corn planted late leaves a lot to be desired.” He expects no bumper crop in his area. The rate of job gains for Rural Mainstreet Iowa over the past 12 months was 0.4 percent.

Kansas: The RMI for Kansas remained above growth neutral 50.0 for the month. The index dipped to 51.2 from 53.1 in June. The farmland-price index decreased to 54.9 from June’s 56.4. The July agricultural equipment sales index slipped to 53.2 from June’s 53.8. The rate of job losses for Rural Mainstreet Kansas over the past 12 months was 0.1 percent.

Minnesota: The RMI for Minnesota moved lower to 54.5 from 57.0 in June. Minnesota’s farmland-price index decreased to 56.6 from June’s 58.4. The July agricultural equipment-sales index stood at 54.9, down slightly from 55.8 in June. Pete Haddeland, CEO of the First National Bank in Mahnomen, said, “Crops look very good.” The rate of job gains for Rural Mainstreet Minnesota over the past 12 months was 1.7 percent.

Missouri: Missouri’s RMI slumped to 49.6 from June’s 51.6. The July farmland-price index for Missouri declined to 54.1 from June’s 55.7. The July farm-equipment sales index decreased to 52.4 from June’s 53.1. The rate of job losses for Rural Mainstreet Missouri over the past 12 months was 0.6 percent.

Nebraska: The July RMI for Nebraska dipped slightly to 53.2 from June’s 55.3. The farmland-price index for July decreased to 54.2 from June’s 57.6. The state’s farm-equipment sales index sank to 54.2 from 55.0 in June. The rate of job gains for Rural Mainstreet Nebraska over the past 12 months was 1.0 percent.

North Dakota: For the 14th straight month, North Dakota’s RMI was the highest in the region. However, the index slid to 56.5 from June’s 58.5. North Dakota's farmland-price index declined to 57.6 from June’s 59.1. Farm-equipment sales stood at 55.9 down slightly from June’s 56.5. The rate of job gains for Rural Mainstreet North Dakota over the past 12 months was 2.8 percent.

South Dakota: For a third straight month, the RMI for South Dakota was above growth neutral with a July reading of 50.8, down from 53.0 in June. The state’s farmland-price index sank to 54.7 from 56.4 in June. South Dakota's farm-equipment sales index was 53.0 for July, compared to 53.8 for July. The rate of job losses for Rural Mainstreet South Dakota over the past 12 months was 0.7 percent.

Wyoming: Wyoming’s RMI for July sank below growth neutral with a reading of 47.5, down from June’s 48.8. The July farm and ranch land price index declined to 53.1 from June’s 54.3. The state’s agriculture equipment sales was unchanged from June’s 51.7. The rate of job losses for Rural Mainstreet Wyoming over the past 12 months was 1.6 percent.

Ernie Goss