Bankers: Midwest, Plains economy in bad shape

Friday, August 21, 2009 | 1:00 p.m. CDT

OMAHA, Neb. — A monthly survey of rural bankers suggests the economy in 11 Midwest and Plains states is still in bad shape, with real estate, retail sales and hiring still below levels needed for growth.

The Rural Mainstreet Index dipped to 32.0 in August from 32.6 in July and 34.0 in June. It is, however, significantly higher than the index's record low of 16.9 in February.

The index ranges from 0 to 100. A score below 50 suggests the economy will contract in the next three to six months, while a score above 50 indicates the economy will expand.

Creighton University economist Ernie Goss, who oversees the survey, said more than three in five bankers surveyed this month expect higher crop yields for 2009. But they also expect depressed crop prices will lead to a drop in farm income.

As a result, the farmland price index remained below growth neutral 50 for the 10th straight month. But there were some signs of hope, as the index rose to 43.7 from 41.4 in July.

"Farm real estate sales are limited, but I just had a 120-acre dry land parcel go for $3,000 per acre," said David Norton, CEO of Filley State Bank in Filley, Neb.

Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the survey, which covers Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota and Wyoming.

The survey's farm equipment sales index also was below growth neutral for the 11th straight month, dropping to 32.4 from July's 36.2.

Its confidence index, which reflects bankers' expectations six months from now, rose slightly to 46.0 from 44.6 in July, but it, too, remained below the neutral 50.

The new-hiring index was unchanged from July's 25 — the 20th consecutive month that index has been below 50.

"Over the past 12 months, rural areas of the region have lost almost 5 percent of their jobs," Goss said.

The retail sales index score was up slightly from 29.5 to 30.4, but still down from 33.9 in August 2008.

"In terms of back-to-school sales, this year's volumes and revenues are stacking up to be the worst in several decades for the Rural Mainstreet economy," Goss said.

Bankers also were asked about the effect of the federal Cash for Clunkers program, in which car buyers can receive rebates of $3,500 or $4,500 for trading in older vehicles for new, more fuel-efficient models.

More than four in five bankers indicated the program had no impact — or had a negative impact — on the number of car loans given at their banks last month.

"We have no way to track the incentive, but July '09 versus July '08 auto paper was down significantly," said Bob Sutter, vice chairman of Hilltop National Bank in Casper, Wyo. "August looks like it will be up significantly."

Almost 200 communities are represented in the survey, with the average community's population being about 1,300.


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