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I continue to be amazed at how well the economy is doing in North Dakota compared to the rest of the country. Amazing what happens when a good part of your state is an oil field.

Here is the latest news on the overall economy. Pretty dismal. By contrast, read these remarks by Mary Erman, chief operating officer of Starion Financial in Bismarck. Erman was elevated to president of the Independent Community Bank of North Dakota last week, when the group conducted its annual convention. Here is what she said about the state’s economy:

In looking at the North Dakota banking industry, I think we need to take note of how Independent Bankers have been committed to supporting their communities and serving their customers with integrity and good financial advice.  We are blessed with a thriving economy - some of which we should take credit for due to our practices of conservative sound banking.      

Isn’t it fun to see North Dakota in national publications - the July 12^th  Newsweek included an article titled “The Great Great Plains” noting North Dakota’s unemployment for May at 3.6 percent compared to national unemployment at 9.7 percent.   The article also reported that Bismarck and Fargo are both in the top 10 of close to 400 metropolitan areas, according to data analyzed by economist Michael Shires for Forbes.  Much of the growth has come in high paying jobs - just in Bismarck, jobs in professional and business services have shot up 40 percent.

We are no longer viewed as the “Fargo” from the movie anymore - and do we hear anyone say “Buffalo Commons”?  Our very own “state owned” Bank of North Dakota has been in the national media and inundated with calls on why they are so successful. 

The strength in the energy industry has brought opportunities and challenges.  A flourishing ag economy and new manufacturing opportunities are having a positive impact in North Dakota small towns where independent bankers are ever involved in economic development and community support.  

Job Service N.D. showed a growth in our labor force of 4,000 since June 2009 translating into increased tax dollars, more consumer spending, and more deposit dollars while the Fed Gazette noted that N.D. shows the least loss of consumer borrowing in the 9^th district - a recipe for a sound economy.  

On a more regional basis, Earnie Goss of Creighton University in Omaha released his Rural Mainstreet index yesterday for the month of August. It was down, and many bankers indicated they expect the country to return to recession in 2011.

More than four in 10, or 43 percent, said they thought a 2011 recession was likely or very likely. Only 26 percent indicated that a 2011 recession was unlikely or very unlikely. According to Frank Sullentrop, president, Legacy Bank in Colwich, Kan., “There is too much uncertainty (coming from Washington).  Businesses do not like to take financial risks in uncertain times.” 

But many signs were positive or neutral. The survey reports:

The farmland-price index moved above growth neutral for a seventh straight month to 55.3 from July’s 52.5 and June’s 54.7. “While Rural Mainstreet businesses are experiencing downturns in economic activity, farming income is holding up much better with resulting upturns in farmland prices,” Goss said.

The farm equipment-sales index rose to 52.7 from 51.8 in July. “Farm income will depend heavily on the value of the dollar.  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, the Jack A. MacAllister Chair in Regional Economics at Creighton.

Many bankers reported very healthy crop yields. For example, Terry Engelken, CEO of Federation Bank in Washington, Iowa, said, “Our county ranges from excellent looking crops to some areas that were too wet to plant.”

Todd Douglas, CEO of the First National Bank in Fort Pierre, S.D., reported, “Although most area row crops look good, grass hoppers have caused damage west and south in our area.”

For a sixth straight month, all bank indicators were above growth neutral. The loan-volumes index increased to 54.2 from 53.1 in July.  For August, the checking-deposit index improved to 59.1 from July’s 54.6.  The index for certificates of deposit and other savings instruments slipped to 54.2 from July’s 55.4. Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, reported that individuals and businesses are focusing on reducing their debt levels and cutting expenses, and as a result are borrowing less.

The August hiring index increased to a still weak 45.9 from 45.4 in July. “Most states in the region continue to lose jobs. Over the past year, Rural Mainstreet has lost approximately 3.5 percent of its total employment,” said Goss. Dale Bradley, CEO of Citizens State Bank in Miltonvale, Kan., echoed much of the sentiment saying, “The economy is certainly not out of the woods yet.”

Much like other elements of August’s survey, Rural Mainstreet retail sales declined to 40.2 from a July reading of 41.7. The economic confidence index, which reflects expectations for the economy six months out, slipped to 46.0 from 52.4 in July and 56.1 in June.    

For a second straight month, the new home sales index sank to 38.8, down from July’s 41.7 and well down from June’s 56.1 and May’s 58.8. “This is the weakest home sales reading that we have recorded this year,” said Goss.  

And Larry Rogers, president of First Bank of Utica, Neb., is concerned that increasingly, people seem to be more willing to walk away from their debt obligations.

Each month, community bank presidents and CEOs in nonurban, agriculturally and resource-dependent portions of the 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

I have been a fan of Ben Crabtree for many years; he is an analyst who has following the banking industry for decades. He currently works with Oak Ridge Financial Services Group. He is kind enough to send me is month analysis, and his July essay caught my eye. While banks might be inclined to “hunker down” given stressful economic conditions, he suggests the strongest banks will make the most of the current market.

He writes:

Given the regulatory uncertainties in this highly-regulated industry, the probability that asset quality pressures will remain quite high (though probably not increasing much) well into next year, and the prospect for no more than a muted recovery in a de-leveraging economy, it would not be surprising to see a lot of basically sound banks decide to pull back into their shells until they could look into the future with more clarity and confidence.

Ultimately, that may not prove to be the best strategy, however; the confluence of pressures on profitability and balance sheet ratios, the increase regulatory burdens, and the poor odds that the industry will get “bailed out” by a strong economic rebound should mean that the bank industry will be in a period of significant restructuring and market share shifts. Banks that are highly threatened by this environment are likely to at best stay dead in the water, and are more likely to shrink. This will mean that banks that are well positioned with strong management, capital ratios that are clearly more than adequate, a loan portfolio that has truly been scrubbed, “best practices” in all important procedures and policies, and healthy regulatory relationships can make substantial market share gains by taking customers away from weaker banks and/or actually expanding via accretive acquisitions, thereby taking advantage of the industry turmoil that will almost surely occur.

 My translation: Expect increased industry consolidation in the coming year or two.

Lack of hiring will be the most significant negative factor affecting the rural economy in the Upper Midwest, according to bankers who participated in the July Rural Mainstreet Index compiled by Creighton University, Omaha, Neb. Only 10 percent of bankers said they see positive impact from the 2009 stimulus spending package. And two-thirds of the bankers said they expect the financial reform legislation to have a negative impact on community banks. Farmland prices are generally rising, although the index indicates that bankers see contraction in the overall rural economy. The index focuses on some 200 rural communities in 10 Midwest states.

After recording an index above growth neutral for two straight months, the overall index for the Rural Mainstreet economy dipped below growth neutral 50.0, according to the July survey. The Rural Mainstreet Index (RMI), which ranges between 0 and 100, sank to 49.3 from June’s 52.6 and May’s 54.3.

Creighton University economist Ernie Goss said, “Much like other economic indicators from across the nation, our survey is signaling slowing in economic progress. However, surveys over the past several months show an economy that has improved significantly from last year at this time.”

The farmland-price index moved above growth neutral for a sixth straight month to 52.5, down slightly from June’s 54.7. “The farm economy has clearly improved from last year and we are seeing that reflected in farmland prices. However, the strengthening of the U.S. dollar, which has dented farm commodity prices, has slowed the growth in farmland prices,” said Goss.

Terry Engelken, CEO of Federation Bank in Washington, Iowa, said, “We are seeing a few farmland sales over $7,000 per acre.”

The farm equipment-sales index slipped to 51.8 from 53.1 in June. “The outlook for farm income for 2010, while still healthy, has softened a bit lately. This has cut into the growth in farm equipment sales,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.

For a fifth straight month, all bank indicators were above growth neutral. The loan-volumes index dipped to 53.1 from June’s 57.9. For July, the checking-deposit index improved to 54.6 from June’s 53.5. The index for certificates of deposit and other savings instruments climbed to 55.4 from 51.8 in June.

This month, bank CEOs were asked to assess the financial reform bill just passed by Congress. Only 29 percent expect it to have a positive influence on community banks while 66 percent anticipate a negative impact. The remaining 5 percent expect little or no impact stemming from the reform package. Some bankers voiced concern for the consumer. For example, Dan Coup, CEO of the First National Bank in Hope, Kan., said, “The sad part about the whole package is that the consumer will again be the biggest loser.”

Amplifying the negative sentiment for the bill, Barry Linnens, CEO of Cottonwood Valley Bank in Cedar Point, Kansas said, “Our small community banks, did not create this situation. However, we will be the first to step up to the plate and help the local community and economy.” On the other hand, Pete Haddeland, CEO of the First National Bank in Mahnomen, Minn., expects the financial reform package to reduce his bank’s FDIC premiums by 39 percent.

After moving above growth neutral for two consecutive months, the new-hiring index fell below 50.0. The July hiring index slumped to 45.4 from June’s 50.9 and May’s much healthier 56.1.

Much like other elements of July’s survey Rural Mainstreet, retail sales nosedived with a reading of 41.7 for July, well off of June’s 52.6. The economic confidence index, which reflects expectations for the economy six months out, slipped to 52.4 from June’s 56.1.

As indicated by Steven Lane, CEO of Security Savings Bank in Farnhamville, Iowa, “People seem to have very little confidence in the economy getting better.” After two straight months of healthy new home sales readings, the July index plummeted to 41.7 from 56.1 in June and 58.8. “Much like the rest of the nation, residential housing has hit a roadblock,” said Goss.

According to Dale Bradley, CEO of Citizens State Bank in Miltonvale, Kan., “There are many economic bumps in the road before we see progress in the U.S. Economy.”

Here is a state-by-state summary:

Colorado:Colorado’s RMI for July once again moved below growth neutral to a weak 45.5 from June’s 47.6. The July farm and ranch land price index dipped to 52.1 from June’s 53.7. Colorado’s farm-equipment sales index moved lower to 50.4 from June’s 51.1. The rate of job losses for Rural Mainstreet Colorado over the past 12 months was 2.7 percent.

Illinois:For a third straight month, Illinois’ RMI advanced above growth neutral. The July reading was 53.4, down from June’s 54.6. For a sixth straight month, farmland prices advanced above growth neutral with a July reading of 56.0, down from 57.2 in June. Farm-equipment sales for July dipped to 54.3 from June’s 54.6. Jim Shafer, president of the First National Bank in Tremont, reported that home sales, hiring and the overall economy were all up slightly. The rate of job gains for Rural Mainstreet Illinois over the past 12 months was 1.5 percent.

Iowa:Iowa’s RMI once again climbed above growth neutral with a July index of 52.5, down slightly from June’s 54.2. The farmland- price index dipped to a still healthy 55.6, down from June’s 57.0. The state’s farm- equipment sales index declined to 53.9 from 54.4 in June. Charles Helscher, president of Farmers Savings Bank in Keota, reported that, “In our area, beans look decent and some corn planted in the first planting window appears average at best, but the corn planted late leaves a lot to be desired.” He expects no bumper crop in his area. The rate of job gains for Rural Mainstreet Iowa over the past 12 months was 0.4 percent.

Kansas:The RMI for Kansas remained above growth neutral 50.0 for the month. The index dipped to 51.2 from 53.1 in June. The farmland-price index decreased to 54.9 from June’s 56.4. The July agricultural equipment sales index slipped to 53.2 from June’s 53.8. The rate of job losses for Rural Mainstreet Kansas over the past 12 months was 0.1 percent.

Minnesota:The RMI for Minnesota moved lower to 54.5 from 57.0 in June. Minnesota’s farmland-price index decreased to 56.6 from June’s 58.4. The July agricultural equipment-sales index stood at 54.9, down slightly from 55.8 in June. Pete Haddeland, CEO of the First National Bank in Mahnomen, said, “Crops look very good.” The rate of job gains for Rural Mainstreet Minnesota over the past 12 months was 1.7 percent.

Missouri:Missouri’s RMI slumped to 49.6 from June’s 51.6. The July farmland-price index for Missouri declined to 54.1 from June’s 55.7. The July farm-equipment sales index decreased to 52.4 from June’s 53.1. The rate of job losses for Rural Mainstreet Missouri over the past 12 months was 0.6 percent.

Nebraska:The July RMI for Nebraska dipped slightly to 53.2 from June’s 55.3. The farmland-price index for July decreased to 54.2 from June’s 57.6. The state’s farm-equipment sales index sank to 54.2 from 55.0 in June. The rate of job gains for Rural Mainstreet Nebraska over the past 12 months was 1.0 percent.

North Dakota:For the 14th straight month, North Dakota’s RMI was the highest in the region. However, the index slid to 56.5 from June’s 58.5. North Dakota’s farmland-price index declined to 57.6 from June’s 59.1. Farm-equipment sales stood at 55.9 down slightly from June’s 56.5. The rate of job gains for Rural Mainstreet North Dakota over the past 12 months was 2.8 percent.

South Dakota: For a third straight month, the RMI for South Dakota was above growth neutral with a July reading of 50.8, down from 53.0 in June. The state’s farmland-price index sank to 54.7 from 56.4 in June. South Dakota’s farm-equipment sales index was 53.0 for July, compared to 53.8 for July. The rate of job losses for Rural Mainstreet South Dakota over the past 12 months was 0.7 percent.

Wyoming:Wyoming’s RMI for July sank below growth neutral with a reading of 47.5, down from June’s 48.8. The July farm and ranch land price index declined to 53.1 from June’s 54.3. The state’s agriculture equipment sales was unchanged from June’s 51.7. The rate of job losses for Rural Mainstreet Wyoming over the past 12 months was 1.6 percent.

The economy is going through a period of slow recovery, explained Sean Snaith, an economist who addressed bankers during the opening general session of the NDBA/SDBA convention this morning in Fargo. He said the recovery is leaving an “ugly scar,” that is, the job market, where unemployment is high and under-employment is problematic.

Snaith, a former professor at the University of North Dakota who now teaches at the University of Florida, said the decline in housing prices and the drop in value of most stocks has substantially diminished the wealth of many Americans. This will prevent the recovery from occurring at the rate that the economy fell into recession. “While some talk about a V-shaped recovery, I just don’t see how we come out of this as quickly as we fell into it,” Snaith said. “I see this more as a ‘gravy boat’ recession and recovery,” he said, suggesting the recovery will be slow and gradual.

He said that the government policy response to the recession has been largely ineffective, likening it to the gadgets available to travelers in the “Sky Mall catalogue.” The four main components of the government response have been interest rate cuts, the first stimulus package, TARP and the second stimulus package. He said these were expensive ideas that really haven’t worked.

Growing U.S. debt is a serious problem, he said, although the effects of the debt have been masked by an inflow of investment capital into U.S. government bonds. Of concern, however, is the high percentage of investment coming from other countries. More than 60 percent of U.S. debt is held by foreigners, compared to just 19.4 percent in 1989, Snaith noted.

“The inevitable result is higher taxes,” he said. “I just don’t see how you go on with our policies without raising taxes.”

The Rural Mainstreet Index, compiled by Economist Ernie Goss at Creighton University in Omaha, reports that the economy is improving throughout the small communities in the Upper Midwest and Heartland. The index jumped 10 points in the last month from negative to positive. It’s the first time the index has been in the positive range since March 2008. Below are the state by state breakdowns for the 11 states covered by the survey. Read more by going directly to the survey here.

Colorado:Colorado’s RMI climbed to 47.6 from April’s 38.4 and March’s 44.3. The May ranchland and farmland-price index declined to 50.9 from 58.0 in April. The state’s farm- equipment sales index moved lower to 48.1 from April’s 54.2. Mike Bass, president of First National Bank of Hugo said, “Winter wheat looks fantastic in our area. We have had good spring moisture.”

Illinois: The Illinois RMI advanced above growth neutral to 53.8 from April’s 42.5 and March’s 47.9. For a fourth straight month, farmland prices advanced above growth neutral with a May reading of 54.0, down from April’s 60.7. Farm-equipment sales for May slipped to 51.2 from 56.9 in April.

Iowa: Iowa’s RMI climbed above growth neutral with a May index of 54.8, up significantly from April’s 43.0. The farmland-price index slipped to a still healthy 54.4 from April’s 61.0. The state’s farm- equipment sales index declined to 51.6 from 57.2 in April.

Kansas: The Kansas RMI, like much of the region, climbed above growth neutral 50.0 for the month. The index rose to 53.7 from April’s 43.5. The farmland-price index slumped to 53.7 from April’s 61.3 and March’s 59.4. The May agricultural equipment sales index slipped to 50.9 from April’s healthy 57.5.

Minnesota:The RMI for Minnesota bounced to the second highest reading on Rural Mainstreet with an index of 56.8, up from April’s 45.0. Minnesota’s farmland-price index slipped to 55.7 from 62.3 in April. The May agricultural equipment-sales index stood at 52.9.

Missouri: The Missouri RMI expanded to 51.9 from 46.7 in April. The May farmland-price index slumped to 52.4 from April’s 63.5. The May farm-equipment sales index dropped below growth neutral to 49.6 from April’s 59.7.

Nebraska: The May RMI for Nebraska rose to 55.7 from 44.6 in April. The farmland-price index for May slipped to 52.2 from April’s 62.1. The state’s farm-equipment sales index dipped to 52.2 from April’s 58.3

North Dakota: For the 12th straight month, North Dakota’s RMI was the highest in the region. The index advanced to 57.5 from April’s 47.3 and March’s much stronger 57.3. North Dakota’s farmland-price index declined to 56.2 from 63.9 in April. Farm-equipment sales were a solid 53.4, but down from April’s 60.1.

South Dakota: The RMI for South Dakota climbed above growth neutral with a May reading of 54.0 which was up significantly from April’s 43.7 and March’s 49.2. The state’s farmland-price index slumped to 53.8 from April’s 61.5. South Dakota’s farm-equipment sales index was 51.0 for May compared to 57.7 for April.

Wyoming:The Wyoming RMI for May expanded to 50.0 from April’s 39.5 and March’s 46.0. The May ranchland and farmland price index sank to 51.1 from 58.7 in April. Contrary to other states, agriculture and ranch equipment sales declined for the month with a May reading of 48.3, down from April’s 54.9. Bob Sutter, vice chairman of Hilltop National Bank in Casper said, “The Goldman Sachs problems, the market flash crash, and the BP oil spill may put a drag on our fragile optimism next month!”

Federal Reserve Bank of Kansas City President Tom Hoenig was sitting in a television studio on Thursday afternoon when the stock market plunged 1,000 pointsin a matter of minutes. The Bloomberg television interviewer was keeping Hoenig apprised: “Down 100 points, now another 100 points, now another hundred points.” The interviewer paused and asked Hoenig “Do you have any comment?” Lacking any additional information, Hoenig declined.

Hoenig shared this story when he spoke to bankers the next day at the Nebraska Bankers Association convention near Omaha. He said we are in a tense environment, ripe for this kind of unpredictable market activity.

The Federal Open Markets Committee has been voting to keep interest rates low, and Hoenig has not been voting with the majority. He explained to the Nebraska bankers that he does not like providing assurances that the Fed will keep rates low. He said it would be better for the Fed not to telegraph its intensions. “At least take away that language so the market has to think about it,” he said.

He said there are three things we must get out of financial industry reform legislation:

1. We have to make sure we end too big to fail. He called the language in the Senate bill a good start, but said the law needs to state clearly when financial institutions will be closed. He did not express confidence in a system that relies on the Treasury Secretary and other officials to make difficult decisions about closing institutions.
2. We need to address the derivatives market. He said that combining the activities of investment banks with traditional banks has increased the risk profile of the banking industry, and steps need to be taken to reduce the risk.
3. And third, the role of the Federal Reserve needs to be preserved with respect to supervision of bank holding companies. He said eliminating the Fed’s role in the supervision of smaller holding companies will turn the Central Bank of the United States into the Central Bank of Wall Street. “I worry about the next crisis. What will it be like to have a central bank with no eyes on the middle part of the country?” he asked.

Hoenig further expressed concern about the country’s growing debt, saying tax increases alone will not solve the problem. Spending cuts are essential, he said.

The mood at yesterday’s Day with the Superintendent in West Des Moines, Iowa, was subdued. There was a sense that financial reform is coming and there’s nothing in it for community banks. What I heard from one banker was: “The legislation won’t really do anything to hurt the big Wall Street banks, and it will do a lot to hurt us, and we had nothing to do with creating the problem.” That seemed to sum up the general mood of the meeting.

Someone else commented that the legislation will be another big step toward turning the banking industry into a utility, like the businesses that provide electricity or water.

Neil Milner, the long-time head of the Iowa Bankers Association who now heads the Conference of State Bank Supervisors, talked about some of the specifics in the reform legislation. He said his organization, which promotes the dual banking system, is lobbying to change Senate language which would strip the Federal Reserve of its responsibility to supervise some 800 community banks across the country. He also questioned the wisdom of putting the proposed new consumer financial protection agency in the Federal Reserve. He said Congress can avoid any budget impact by locating it in the Fed, where the independent agency would need to fund it. Milner noted that if the Fed has no authority over the agency, it is not likely to be very interested in funding it.

It appears the legislation will permit de novo branching across state lines for any bank. Milner said he would like to see the national 10 percent deposit cap applied to S&Ls; currently, thrifts are not included in the calculation.

The news on the economic front was subdued as well. Economist Bernie Goss told the 400 bankers that they should prepare for higher interest rates, higher taxes and inflation. He said there are signs the economy is improving but that the question is whether it will last.

Look for complete meeting coverage in the May 15 edition of NorthWestern Financial Review.

I am really enjoying following the speeches Narayana Kocherlakota is delivering as new president of the Minneapolis Federal Reserve Bank. He was in Helena, Montana last week, where the bank has a branch. He delivered a speech in which he gave an economic forecast, talked about the housing market, and talked about the Fed’s plans for discontinuing some of the programs it launched in response to the financial crisis. Read the full text here.

The Federal Reserve is supposed to be independent, that is, at least as independent as possible for an organization created by Congress. Speaking about the potential for inflation, however, Kocherlakota made a comment that seemed to offer cover for Congress.

Here’s the set up for the comment. Kocherlakota notes that federal debt held by the private sector has increase more than 30 percent since 2008. “This debt,” he said, “can only be paid by tax collections or by the Federal Reserve’s debt monetization.” (By that, he means printing money.) He said if people expect the government is going to print more money to cover its debt, it will drive inflationary expectations, which could well become a self-fulfilling prophecy.

Now, here’s the part I find curious:

I hasten to say—and I want to stress—that I view this scenario as unlikely. For it to transpire, the country would need a combination of bad monetary policy and poor fiscal management. I do not foresee this combination as likely to occur. Nonetheless, good policy requires good choices, and policymakers at the Federal Reserve and in Congress need to keep this scenario in mind when making their decisions. I can assure you that we in the Federal Reserve have every intention of keeping our end of the bargain.

Congress, of course, is responsible for fiscal management. Kocherlakota is saying that the Fed will not screw up monetary policy, so he seems to be saying that even if Congress continues to make a mess of this country’s fiscal situation, we will all be okay. That’s quite a gift to hand to the members of Congress!

I would be a lot more assured if Kocherlakota had said something along the lines of: “policymakers at the Fed and in Congress need to make good choices if we are to keep inflation in check.” But that is not what he said. He assures the Fed will do its job, which means we will avoid the dangerous combination he warns of. To me, it seems like this reasoning gives Congress a pass on hard decisions.

Even if Kocherlakota is completely confident that the Fed can contain inflation despite irresponsible congressional behavior, I don’t know that the rest of the American people believe that. I know I don’t.

Jim Nowak and Ben Eskierka of United Bankers Bank teamed to present an industry update Friday at the Embassy Suites Hotel in Bloomington, Minn., before about 170 bankers. While noting challenges, both said there are opportunities for communities bankers.

Nowak noted the toll the economy is taking on banks. More than 500 banks in the United States have a Texas ratio of higher than 99, (26 of those are located in Minnesota). Positively, however, he noted the steep yield curve. He also said trends in non-performing loans and delinquencies are heading in the right direction, and that liability costs are the lowest they have been in decades.

Eskierka pointed out that the difference between two-year and 10-year Treasury bonds is well over 250 basis points. The yield curve is very steep and it is steepening. Eskierka called it a gift from Uncle Sam. “The Fed is giving you this yield curve to help you make money, so you can re-capitalize and get out of this mess,” he said.

The Fed will eventually begin raising rates, although even if it wanted to raise the Fed Funds rate today it couldn’t because of the lack of demand. “There is so much excess money out there,” Eskierka noted.

Historically, the Federal Reserve has waited 12 months after the unemployment rate peaks before it raises interest rates. The U.S. unemployment rate was 10.1 percent in October of 2009 and has since dropped to 9.7 percent. Eskierka also noted the low core inflation rate. (Core inflation is inflation less food and energy.) The core inflation rate currently stands at about 1.3 percent. In late 2003-early 2004 when the core inflation rate dropped to about 1.1 percent, there was a lot of nervousness about disinflation.

“I personally think it will be difficult for the Fed to raise rates with unemplyment so high and core inflation so low,” Eskierka said.

(Watch for the May 1, 2010 edition of NorthWestern Financial Review for more on the United Bankers Bank seminar.)

Economic activity in the manufacturing sector expanded in February for the seventh consecutive month, and the factory employment index rose for the third straight month, according to the Institute for Supply Management’s February report, which was released yesterday.

The Mid-America survey of supply managers in Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota (as well as Arkansas and Oklahoma), also released yesterday, rose to its highest level since April of 2007. “It was a quite unexpected, for me, increase; the number was well above growth neutral,” said Prof. Ernie Goss, who runs the survey from Creighton University. Check out his YouTube clip here.

Clare Zempel, an economist and founder of Zempel Strategic, recently told a gathering of Wisconsin bankers that the global economic recovery is well underway and he sees no chance of a double dip. “There’s a lot of hard evidence that the process of recovery has taken hold and taken hold dramatically,” Zempel said.

Read much more about this in the March 15 edition of NorthWestern Financial Review.