More than four in ten rural bankers expect the economy to dip back into a recession in 2011 according to a Creighton University poll. “There is too much uncertainty (coming from Washington). Businesses do not like to take financial risks in uncertain times,” responded Frank Sullentrop of Legacy Bank.
The overall Rural Mainstreet Index (RMI) slipped to 46.0 this month, according the August survey of bank CEOs in a 10-state region. The RMI decreased to a four-month low and is below growth neutral 50.0 for the second consecutive month after peaking in May of 2010 at 54.3.
“Much like the nation, bank CEOs are tracking significant pullbacks in economic activity,” said economist Erine Goss, co-author of the report.
Bankers' pessimistic outlook was also apparent by the monthly confidence index, which tracks bankers' economic outlook six months out, that dropped for a third straight month to 46.0 from July’s response of 52.4. The index is the lowest since September of 2009 and ended its streak of being above 50.0 for the past 10 months.
Offsetting the negative outlook on the overall economy, the farmland price index increased to 55.3, and continued its impressive streak above 50.0 for the seventh month in a row. Goss noted, “While Rural Mainstreet businesses are experiencing downturns in economic activity, farming income is holding up much better with resulting upturns in farmland prices.”
Bankers also reported very healthy crop yields. “Our county ranges from excellent looking crops to some areas that were too wet to plant,” commented Terry Engelken, CEO of Federation Bank.
The farm equipment sales index increased to 52.7 this month. The index has remained above growth neutral for five consecutive months due to a steady demand for equipment. “As long as we don’t experience any significant upward moves in the value of the dollar, I expect farm income to continue to grow for 2010,” said Goss.
Bankers were also asked, “Would the customers and businesses in your area support changing the corn ethanol blend percentage?” 73% of bankers reported that their customers and businesses would support an increase of ethanol blended into gasoline. The EPA is due to make a decision on an increase in ethanol blend this fall.
Bankers’ responses are consistent with the overall economic concerns this summer about the U.S. economy. Weak housing sales, slower retail purchases, and a lack of jobs is weighing on the economy. Attentions are now turned to a double-dip recession.
The one bright spot in the report continues to be agriculture as the farmland price and equipment sales indexes have been able to stay above growth neutral for over five months now. High grain prices and healthy crop yields should allow farmers to sow bumper profits in 2010.
Disclosure: No positions