Survey says December gains are modest in rural economy

A survey of rural bankers in nine Midwestern and Plains states indicates economic activity held its own or saw modest gains the past month.

The overall economic index for the region advanced to 54.3 in December from 54.1 in November and 52.1 in October. A reading of 50.0 is growth neutral, so December's index indicates positive but subdued growth, Creighton University economist Ernie Goss said.

The farm equipment sales index soared to a record 65.9 from November's healthy 60.1.

December's farmland price index expanded to 77.3 from November's vigorous 68.8 and October's 65.4. Dale Torpey, president of Federation Bank in Washington, Iowa, said several land sales in his area recently have brought in $7,975 per acre.

But John Schmaderer, president of Tri-County Bank in Stuart, Neb., said fuel, fertilizer and rents are increasing and producers will need a sound crop insurance plan to protect their yields.

As a result, bankers sizing up the economy six months out! were not very optimistic with a December confidence index of 44.5, which was the lowest reading of the year and well down from December of last year.

Job growth remains weak, with a December new hiring index of 50.6, up slightly from November's 50.0 and October's 49.3. Results from surveys over the past four months indicate that jobs are being added at a pace well below average, even with record farm income.

Some 55.4 percent of bankers expect 2008 job growth at ethanol plants to be down from 2007 levels. Only 21.4 percent expect any significant degree of mergers or consolidation in the industry.

The home-sales index declined for the sixth straight month to 28.0, the lowest reading of the year and down from November's 29.8 and October's 30.7. Bruce Morgan, CEO of Valley State Bank in Roeland Park, Kan., said real estate values have not dropped as much as in some areas of the country, but inventories of new and resale housing are very high.

"It will likely take ! 12 to 18 months before any substantial turnaround occurs," Mor! gan said .

Retail sales were a weak 45.6, which was well off the 2006 reading for December of 50.0.

Goss said Christmas sales will be lackluster in rural areas.

Bank indicators were solid for December. Loan volume rose to 52.2 from 48.2 in November. Checking deposits increased for a third consecutive month to 65.0 from 59.5 in November and 56.3 in October. Certificates of deposit and other savings instruments declined to 56.7 from 58.9 in November.

Goss and Bill McQuillan, chief executive officer of City National Bank in Greeley, Neb., created the monthly survey of rural bank presidents and chief executives.

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On the Net:

Creighton University Business Department: http://www2.creighton.edu/business/economicoutlook

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