Rural economic index drops for 1st time in 6 months; index compiled from bankers survey

Rural bankers economic survey index drops

OMAHA, Neb. — Rural bankers believe that a hiring drought, fear of anemic commodity prices and concern over the high cost of farming are hurting the Midwest’s rural economy, according to survey results released Friday.

Bankers from 11 Midwest and Plains states who participated in the Rural Mainstreet survey were asked to identify the biggest economic challenge to the region’s economy in 2010. More than a third — 38 percent — said they expect a lack of new hiring by businesses to be the most significant hurdle.

About 30 percent said weak commodity prices will be the largest problem, while 16 percent cited expectations of high input prices to farm, such as for fertilizer, animal feed and fuel.

The survey’s overall index for February declined to 36.6, compared with 41 in January. It was the index’s first decline in six months.

The index ranges between 0 and 100. A score below 50 suggests the economy will contract in the next few months; above 50 indicates the economy will expand.

The index has remained below 50 for 24 consecutive months.

Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota and Wyoming were surveyed.

“The softer farm economy for 2009 continues to weigh on Rural Mainstreet businesses in the region,” said Creighton University economist Ernie Goss, who oversees the survey. “Agriculture producers have been taking a conservative approach to their buying, and this is showing up in our survey.”

February’s loan volume index of 43.7 was up significantly from January’s record low 33.4, but still well below growth-neutral 50. Asked why banks had not stepped up their lending, more than 41 percent of bank CEOs surveyed said regulatory oversight was the prime factor.

“I think the regulators have zeroed in on community banks, and are holding them to a much higher standard than the big banks,” said Pete Haddeland, CEO of First National Bank in Mahnomen, Minn.

But 34 percent reported that a drop in demand from borrowers was the chief factor in reduced lending. Only 21 percent said that borrower credit quality was the main limit to lending.

The report’s confidence index, which tracks bankers’ economic outlook six months down the road, sank with the overall index, dropping to 52.8 from January’s 59.7.

The new-hiring index fell to 34.8 from January’s 40.1, but came in well above the record low of 14.7 set in February 2009.

The February farmland-price index rose to 52.8 from 47.4 in January — the first time it’s moved above 50 since October 2008.

On the Net:

Creighton University economic surveys: www2.creighton.edu/business/economicoutlook