The Rural Mainstreet Index (RMI) rose in January and is at its highest level since June 2007. The index, conceived and calculated at Creighton University in Omaha, advanced to 59.8 from 59.7 in December.      

When asked what they expected to be the biggest economic challenge for 2012, more than a quarter (26%) of bankers indicated that a decline in ag-commodity prices represents the largest Rural Mainstreet threat. Another 25% and 15% indicated that a shortage of jobs and lack of skilled workers were the greatest 2012 threats, respectively.

We’re detecting a leveling off in the growth of the Rural Mainstreet economy. While slower global economic growth, higher energy costs, and softer ag-commodity prices will mean somewhat slower growth for the first few months of 2012, our surveys continue to show healthy growth.

According to Pete Haddeland, CEO of the First National Bank in Mahnomen, MN, “Higher fuel costs have a bigger impact on rural communities than urban areas. The double whammy of high gas costs and high heating fuel cost is being felt.”

Here’s a rundown of the results from the January survey by economic sector:

Farming: After rising to a record level for December (84.1), the farmland price index (FPI) fell to a still-healthy reading for January of 74.3. This is the 24th straight month the index has been above growth neutral. Farm equipment sales index slipped to 72.3 from 73.8.

Very healthy farm income has encouraged farmers to purchase new equipment and expand operations. This has pushed up farmland prices at rates that are, in my judgment, unsustainable in the long run. Air will come out of the farmland price bubble when ag-commodity prices soften in the months ahead.

Kathy Thuman, president of Farmers State Bank in Maywood, NE, says her bank is monitoring land sales carefully, aware that another real estate bubble may be forming, and concerned that it may burst.

Bankers reported on likely outcomes from the end of the blender’s tax credit for corn-based ethanol at the end of 2011.  Almost 9% expect the termination of the credit to have significant negative impacts on the Rural Mainstreet economy. However, a majority, 51%, anticipate that the ending of the tax credit will have a modest negative economic impact. The remaining 40% expect only slight or no negative impacts. None of the bankers reported a positive impact due to the expiration of the credits.

Banking: The loan volume index for January slumped to 45.5 from December’s 50.8. The checking deposit index dipped to 68.2 from December’s 68.9, while the index for certificates of deposit and other savings instruments moved to a weak 47.8 from 37.0 in December. Farmers have used their very strong 2011 earnings to pay down loans. This has been and will continue to be both a negative and a positive.

For example, Thuman reports, “Farmers are using their profits to pay down debt, which is what we've been advising them to do.”

On the other hand, Larry Rogers, president of the First Bank of Utica in Utica, NE, says community bank earnings are affected by loan volume. “If farmers pay down debt substantially, which might happen, some community banks could suffer,” he says. He says this action could negatively impact the community.

Hiring: January’s hiring index declined to 51.5 from 54.6 in December. Year-over-year job growth for Rural Mainstreet communities is approximately1% compared with 0.8% for urban areas of the region.

Confidence: The economic confidence index, which reflects expectations for the economy six months out, sank to 56.1 from December’s 61.8. Difficulties in Europe and potential conflicts with Iran combined to push economic confidence lower.

This global economic volatility continues to influence the outlook. For example, Dale Bradley, CEO of Citizens State Bank in Miltonvale, KS, says both state and national economies remain unstable and volatile.

Home and retail sales : For a sixth straight month, the Rural Mainstreet home sales index stood below growth neutral at 49.2, though it was up from December’s weak 46.2. The retail sales index for January plummeted to 51.5 from December’s record-high 61.6. Very healthy farm income hasn’t produced any significant upturn in retail sales as Rural Mainstreet retailers see only modest upturns.