OMAHA, Neb. – The overall index for the Rural Mainstreet economy moved above growth neutral 50.0 for a second straight month advancing to its highest level since January 2008, according to the December survey of bank CEOs in a 10-state region.
Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, increased to 55.4 from 53.3 in November. This compares to a reading of 40.9 for December 2009.
Creighton University economist Ernie Goss said, “Very healthy farm income is rippling across the Rural Mainstreet economy. Businesses heavily dependent on the farm economy continue to experience very strong economic conditions.” Goss and Bill McQuillan, CEO of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.
Farming: The farmland price index soared for the month with the index moving above growth neutral for an 11th straight month to 76.9, its highest level since March 2008, up significantly from 68.1 in November. The farm equipment sales index likewise bounced higher with a December reading of 77.8, a record high, from November’s 68.1.
Michael Johnson, CEO of Swedish American State Bank in Courtland Kan., attested to the rapid price growth in farmland, “A land auction was held two weeks ago and land that would have brought $2,500 an acre two years ago sold for $5,000 to $5,500 an acre.”
“This month bankers were asked to name the biggest threat to the Rural Mainstreet economy for 2011. Over one-third or 35 percent indicated that a bursting of the farmland price bubble was the number one threat to the economy for next year. More than one in four or 27 percent of the bankers named low agricultural commodity prices as the number one risk for the Rural Mainstreet economy,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.
Jeffrey Gerhart, CEO of Bank of Newman Grove, in Nebraska echoed words of caution, “While the agricultural economy has been doing well, ag bankers and farmers need to be cautious as they look ahead to 2011 and beyond.
Steven Lane, CEO of Security Savings Bank in Farnhamville, Iowa, said, “There is some concern over the sharp increase in land prices in the last three months.” He indicated that a large share of buying was coming from nonlocal investors.
Banking: Expansions in farm activity, including land and equipment buying, pushed loan volumes higher with a December reading of 52.3, up significantly from November’s 35.3 and October’s 48.4.
David Callies, CEO of Miner County Bank in Howard, S. D., confirmed solid farm income in his area. “Liquidity is very high with deposits up and loans being paid down. Loan demand is low,” he said.
For the 10th straight month, the other two banking indicators stood above growth neutral. However, the checking deposit index sank to 66.7 from 76.3 in November. The index for certificates of deposit and other savings instruments slumped to 50.1 from November’s 55.8.
This month, bankers were asked when they expected a Federal Reserve interest rate hike. Approximately 62 percent anticipate a 2011 increase. The remaining 38 percent expect a rate increase in 2012.
Jobs: The Rural Mainstreet economy has begun to add jobs with a December jobs index of 50.1, up from November’s 46.8 and October’s 46.0. “While many metropolitan areas continue to shed jobs, agriculturally dependent small towns have begun to see improving job prospects,” said Goss.
Confidence: The economic confidence index, which reflects expectations for the economy six months out, dipped slightly to 62.2 from 63.8 in November. The confidence index has been trending higher over the past year and is well above last December’s reading of 53.7.
Home and retail sales: Home sales remained weak with a December reading of 43.9, which was down from November’s 45.1. This is the sixth straight month the reading was below growth neutral 50.0. Surprisingly, the retail sales index moved above growth neutral for a second straight month with a December reading of 57.1, up significantly from November’s 50.1. “Home sales have been on the decline since the end of the tax credit for first-time home buyers last April,” said Goss.
Bankers were asked how much residential housing prices in their areas have changed over the past year. Only 12 percent reported an upturn in prices while 52 percent indicated that housing prices had declined over the past year. One in four or 25 percent said housing prices had declined more than 5 percent over the past 12 months.
Each month, community bank presidents and CEOs in nonurban, agriculturally and energy-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 was once again below growth neutral. The December reading rose to a frail and regional low of 47.2 from 44.7 in November. The December farmland and ranchland price index increased to a very healthy 72.8 from 63.8 in November. Colorado’s farm equipment sales index improved to 73.6 from 64.4 in November. The rate of job losses for Rural Mainstreet Colorado over the past 12 months was 2.8 percent.
Illinois: For an eighth straight month, Illinois’ RMI advanced above growth neutral. The December reading stood at 65.2, a regional high, up from November’s 62.7. For an 11th straight month, farmland prices advanced above growth neutral with a December reading of 81.8, up from 69.3 in November. Farm equipment sales for December expanded to 82.6 from 67.5 in November. The rate of job gains for Rural Mainstreet Illinois over the past 12 months was 5.2 percent.
Iowa: The state’s RMI rose above growth neutral for the month with December reading of 55.8 which was higher than November’s 54.3. The farmland price index jumped to 77.1 from 68.6 in November. The state’s farm equipment sales index grew to 78.0 from November’s 69.2. The rate of job losses for Rural Mainstreet Iowa over the past 12 months was 0.9 percent.
Kansas: The RMI for Kansas rose above growth neutral 50.0 for the month. The index climbed to 59.3 from November’s 57.4 and October’s 51.0. The farmland price index increased to 78.8 from 70.2 in November. The December agricultural equipment sales index rose to 79.7 from 70.8 in November. The rate of job gains for Rural Mainstreet Kansas over the past 12 months was 2.1 percent.
Minnesota: The December RMI for Minnesota climbed to 61.5 from 60.7 in November. Minnesota’s farmland price index climbed to 80.0 from November’s 71.8. The agricultural equipment sales index stood at 80.8 from 72.4 in November. Pete Haddeland, CEO of the First National Bank in Mahnomen said that, “Lots of Farmers are prepaying expenses to avoid Incomes taxes for next year.” The rate of job gains for Rural Mainstreet Minnesota over the past 12 months was 2.8 percent.
Missouri: The RMI for Missouri increased to 47.8 from 45.8 in November. The farmland price index for Missouri climbed to 73.1 from 64.4 in November and 56.6 in October. The December farm equipment sales index advanced to 73.9 from 65.0 in November. The rate of job losses for Rural Mainstreet Missouri over the past 12 months was 4.4 percent.
Nebraska: The December RMI for Nebraska moved higher to 58.6 from November’s 56.7 and October’s 52.0. The farmland price index climbed to 78.5 from 69.8 in November. The farm equipment sales index grew to 79.3 from November’s 70.4. Kathy Thuman, president of Farmers State Bank in Maywood, said, “Our farmers have cash burning holes in their pockets, leading to spending on machinery and equipment, livestock and input expenses before the end of the year.” The rate of job gains for Rural Mainstreet Nebraska over the past 12 months was 1.8 percent.
North Dakota: The state’s December RMI expanded to 60.1 from November’s 57.6 and October’s 52.8. The farmland price index increased to 79.2 from 70.2 in November. Farm equipment sales for December stood at 80.1 from 70.8 in November. The rate of job gains for Rural Mainstreet North Dakota over the past 12 months was 3.4 percent.
South Dakota: For a second straight month, the RMI for South Dakota climbed above growth neutral. The index for December advanced to 56.8 from 54.8 in November. The farmland price index climbed to 77.6 from November’s 68.8. South Dakota's farm equipment sales index for December was 77.6, up from November’s 69.4. The rate of job gains for Rural Mainstreet South Dakota over the past 12 months was 0.6 percent.
Wyoming: The state’s RMI for December advanced to 58.2 from 55.0 in November. The December farmland and ranchland price index rose to 78.3 from 68.9 in November and 60.5 in October. The state’s agricultural equipment sales advanced to 79.2 from 69.5 in November. Bob Sutter, vice chairman of Hilltop National Bank in Casper indicated, “We have seen an increase in residential sales/financing this month, which is unusual for this time of year. The increase seems to reflect buyer's concerns about rising rates and the risk of "missing out" on the historic low rates.” The rate of job gains for Rural Mainstreet Wyoming over the past 12 months was 1.9 percent.