Rural economy a mixed bag: 10-state studyon September 24th, 2012 at 6:00 am
Illinois’ economy has been affected by the drought and other negatives, plus improved retail sales, home sales and some positives, but its overall Rural Mainstreet Index remains below neutral, according to the new assessment of Creighton University’s monthly poll of area business executives.
The state’s Rural Mainstreet Index (RMI) fell from 36.1 in July to 34.3 in August, says the project out of Creighton’s marketing and public relations department at its Omaha campus. It’s the third consecutive month Illinois’ RMI was below growth neutral.
However, among the RMI’s 10 national criteria, some consumer banking, retail business and home sales made gains, too, making the RMI a valuable but complex economic indicator. The last two months have shown the extent of the drought, demonstrating that it’s widespread geographically. Positives are occurring, too, and phenomena like climate, pests or plant disease cannot be directly blamed on Wall Street, Congress or President Obama. A weakness in the RMI is its reliance exclusively on community bankers and corporate executives when it concedes that entire communities beyond banks and businesses and even farms are influenced by factors such as this summer’s lengthy heat and dry weather in the Midwest and much of the country.
“Many corn fields will yield next to nothing,” said Jim Eckert, president of Anchor State Bank in Anchor, Ill., in McLean County. “Most will have drastically reduced yields unless rain comes quickly. Soybeans are badly hurt by the drought, but could still be revived by timely rains.”
In Carlinville, Ill., Carlinville National Bank president Jim Ashworth added, “The drought is severe in west-central Illinois. Conditions are like those in Steinbeck’s ‘Grapes of Wrath’, but no one today wants to move to California.”
Creighton’s RMI each month surveys community bank presidents and CEOs in nonurban, agriculture-oriented and energy-dependent parts of Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming. The executives are asked about economic conditions in their communities and their outlooks for six months ahead.
“This survey represents an early snapshot of the economy,” said Dr. Ernie Goss, a Creighton economist who helped create the monthly economic survey in 2005. “The Rural Mainstreet Index (RMI) is a unique index 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.”
The RMI ranges from 0 to 100, with 50.0 representing growth neutral.
A helpful glimpse of the economy in rural America, the RMI is just a peek – one dependent on a narrow point of view. A strength is its sourcing of community bankers instead of Wall Street giants; a limitation is the absence of regular people: producers, suppliers, shopkeepers, workers and consumers directly adding their perspectives.
Overall, the 10-state area’s economic index was 47.1, a drop of 0.8 from the previous month, just below growth neutral (50). Also declining were activity with certificates of deposit and savings, farmland prices, farm-equipment sales, hiring and confidence (reflecting the executives’ expectations for the next half year).
Hiring fell some, from 52.8 to 51.9, and confidence showed slight movement downward, from 40.9 to 39.6.
Showing improvement from July were the volume of loans (+2.8), checking deposits (+1.2), home sales (+1.6) and retail business (+0.8).
Further, the regional farmland price index’s 52.8 level was down from July but still the 31st consecutive month land prices were above growth neutral.
Also, community bankers reported that the drought encouraged more borrowing, from 29 percent of bankers seeing a rise in loans in July to 41 percent last month. It’s debatable whether increased business for community banks vs. increased producer/consumer debt is positive.
Again, however, both home sales and retail business were up. August’s home sales index increased from 58.6 to 60.2; the month’s retail sales index rose from 44.4 to 45.2.
Compared to August 2011, hiring, home sales, and loan volume all showed marked improvement from a years ago.
For Illinois specifically, its RMI for August slumped to 34.4 from July’s 36.1, according to the business executives’ replies. The state’s own farmland prices remained below growth neutral with a reading of 45.3 for August, down from July’s 50.4. The state’s new-hiring index dipped to 43.7 from July’s 44.6.
“The drought is dampening economic activity across the region,” Goss said. “Just as the region has benefited mightily from very healthy farm income over the past few years, we are now detecting warning signals of a significant economic reversal for rural areas.
“Companies with close ties to the farm, such as ethanol, agriculture equipment sellers and food processors, are experiencing pullbacks in growth,” he added.