MainStreet index stalls on concern over taxes

An indicator of the Midwest's rural economy declined for the second straight month, signaling continued economic weakness.

The Rural MainStreet Index for July fell to 32.6 from 34.0 in June, but the index was up significantly from February's record low of 16.9. A reading of 50.0 is considered growth-neutral.

“It was not an encouraging report,” said Creighton University economist Ernie Goss, who originated the survey with Greeley, Neb., banker Bill McQuillan.

The March, April and May reports signaled an upward trend, Goss said. “Now for June and July it looks like we've stalled or hiccuped.”

He attributed the decline to uncertainty surrounding national policy, specifically health care reform, the stimulus package and proposed “cap and trade” legislation to limit the production of greenhouse gas emissions.

“All that involves taxes, and somebody has to pay for it,” Goss said. “Everybody is wondering who is going to pay for it.”

The survey asks questions of community bank presidents and CEOs from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota and Wyoming, focusing on approximately 200 rural communities with an average population of 1,300.

One question posed this month to bankers: “As part of the 2009 Healthcare Bill, should expanded health insurance to the insured be funded by increasing taxes on workers making more than $280,000 per year?”

Nearly 69 percent answered “definitely not” — a higher number than Goss had expected.

Another question this month asked bankers for their expectations for 2009 crop income. Only 6.3 percent of the bankers forecast an increase in farm income over 2008, while 33 percent expect farm income to be down significantly from last year.

The weak global economy has affected the farm sector significantly, according to the report. Both land prices and sales of farm equipment have weakened over the past several months.

Expectations for crop yields are up over last year, but prices are down, pushing farm income downward, Goss said.

Like much of the nation, rural retail sales were less than healthy for the month, with a July retail-sales index of 29.5, its lowest level since April 2009, and down from June's 33.7.

“That's just another indication that consumers are pulling back,” Goss said.

Hiring in the rural areas remains weak.

The new-hiring index for July was 25.0, its lowest level since April of this year, and down from June's 29.0. It marked the 19th consecutive month that the index was below growth-neutral.

In the past 12 months, the region's rural areas have lost almost 5 percent of their jobs. July's survey indicates that these job losses are likely to continue.

The confidence index, which tracks expectations for the rural economy six months out, tumbled to 44.6, from June's 52.2 and May's 56.0.

Contact the writer:

444-1183, christine.laue@owh.com

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