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Rural Mainstreet Index Declines Again


Aug 17 - Drought conditions continue to weigh on the Rural Mainstreet economy with the monthly index reaching its lowest level since April 2009. Overall, the Rural Mainstreet Index, which ranges between 0 and 100 with 50.0 representing growth neutral, declined for the third straight month to 47.1, from 47.9 in July. 

According to Jim Eckert, president of Anchor State Bank in Anchor, Ill., “Uncertainty over future tax policy and the costs of Obama Care have many of our farm and commercial customers sitting on the sidelines in borrowing and hiring staff.”

Creighton University economist Ernie Goss said, “The drought is dampening economic activity across the region. Companies with close ties to the farm, such as ethanol, and agriculture equipment sellers are experiencing pullbacks in growth. I expect food processors to take a hit later in the year as higher food prices work their way through the system.” 

Almost one third, or 31 percent, of bankers reported that the drought was negatively affecting business activity in their area for August. 

Farming: According to surveys for the past several months, farmland price growth has weakened significantly. However, there is a great deal of variance across the region with areas that are irrigated or not hit by the drought continuing to report solid growth. The August farmland price index growth weakened with an August reading of 52.8, down from July’s 58.6, reaching its lowest level since July 2009. Even so, this is the 31st consecutive month the index has been above growth neutral. The farm equipment sales index sank to 38.3, its lowest level since October 2008, and was down from July’s 46.1 in July. “The drought is putting a dent in farmland price growth and the purchase of agriculture equipment, including trucks,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton. 

This month, bank CEOs were asked about the impact of the drought on farm borrowing. Approximately 41 percent reported that the drought has encouraged greater agriculture borrowing. This is up significantly from July when only 29 percent of bankers reported an increase in borrowing as a result of the drought.

Additionally for August, 46 percent of bankers reported that livestock producers in their area were reducing the size of their herds as a result of the drought. Last month only 13 percent of bankers reported that livestock producers were reducing the size of their herds due to recent severe drought conditions.  

Bill Hess, CEO of Iowa Savings Bank in Carroll, Iowa, reported that the drought and high grain prices have caused livestock finishers to reduce risk by “cutting numbers.”

Banking: Farmers increased their demand for loans with the loan-volume index climbing to 67.6 from July’s 65.3. This marks the sixth consecutive month the index has risen.  

The checking-deposit index advanced to a weak 49.1 from 47.9 in July, while the index for certificates of deposit and other savings instruments slumped to 33.0 from July’s higher 41.7. “The drought appears to be increasing the cash needs of farmers in the region. We have been tracking a reduction in the percent of farmland and farm equipment cash sales and upturns in the degree of bank financing,” said Goss.

Hiring: August’s hiring index declined to 51.9 from July’s 52.8. “Even though we tracked hiring growth for the month, the index was down from July and June. I expect hiring to drift lower with job losses in the months ahead as the impacts of the drought spread to more and more Rural Mainstreet businesses,” said Goss.

Confidence: The confidence index, which reflects expectations for the economy six months out, sank to 39.6 from July’s 40.9 and June’s much stronger 58.5. “The drought has definitely lowered the economic and business confidence of bank CEOs in the area,” said Goss.

Home and retail sales: The August home-sales index rose to 60.2 from July’s 58.6. Retail sales declined for August. The August retail-sales index rose to 45.2, still below growth neutral, but up from July’s 44.4. “The pace of sales for homes in the area remains positive. On the other hand for a second straight month, drought conditions weakened retail sales,” said Goss.

Each month, community bank presidents and CEOs in non-urban, agriculturally and energy-dependent portions of a 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.

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy. Goss and Bill McQuillan, CEO of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.

Colorado: After 19 straight months with a Rural Mainstreet Index above growth neutral, Colorado’s RMI plummeted to 25.2 from July’s weak 50.1 and June’s 57.6. The farmland and ranchland price index declined to 44.2 from 61.3 in July. Colorado’s hiring index for August was 43.0, well down from July’s 51.8. Mike Bass, president of the First National Bank of Hugo said, “The drought has not affected tourism/recreational spending in Colorado, but the fires across the state have had a major impact on tourism.”

Illinois: For a third straight month, the RMI for Illinois remained below growth neutral. The August index slumped to 34.4 from July’s 36.1. Farmland prices remained below growth neutral with a reading of 45.3 for August, down from July’s 50.4. The state’s new-hiring index dipped to 43.7 from July’s 44.6.

Iowa: Iowa’s RMI for August rose to 49.2 from July’s 48.6. The farmland price index declined to 57.2 from July’s 63.5. Iowa’s new-hiring index for August dipped to 51.6 from 53.3 in July.
Kansas: The Kansas RMI for August advanced to 50.1 from July’s 43.2. The farmland price index sank to 53.2 from 58.4 in August. The state’s new-hiring index decreased to 48.9 from 49.9 in July. 

Minnesota: The August RMI for Minnesota declined to 52.9 from July’s 54.6. Minnesota’s farmland price index dipped to 60.3 from 66.2 in July.  Minnesota’s new-hiring index decreased to 53.7 from July’s 55.1. Minnesota has been spared much of the negative drought impacts. According to Pete Haddeland, CEO of First National Bank in Mahnomen, “Our crops here still look good. We have had the right amount of rain at the right time. The hot summer has had a positive impact on our resorts.”

Missouri: The RMI for Missouri declined to 39.8 from 44.3 in July. The farmland price index for August slipped to 44.6 from 50.2 in July. Missouri’s new-hiring index slumped to 31.6 from 35.8 in July.

Nebraska: For a second straight month, growth in Nebraska’s rural economy moved into negative territory. The August RMI for the state rose to 44.1 from July’s 43.4. The farmland price index slipped to 48.9 from July’s 52.3. Nebraska’s new-hiring index advanced to a weak 46.0 from July’s 45.8.

North Dakota: The North Dakota RMI for August declined, but remained strong with a regional high 72.1, down from July’s 75.6. The farmland price index slipped to 68.9 from 73.6 in July. North Dakota’s new-hiring index rose to 67.8 from 66.4 in August.

South Dakota: The August RMI for South Dakota expanded to 52.2 from 46.7 in July. The farmland price index dipped to 49.3 from 50.4 in July. South Dakota's new-hiring index for August increased to a still weak 46.3 from July’s 44.6.     

Wyoming: The August RMI for Wyoming slumped to 36.7 from 39.3 in July. The August farmland and ranchland price index declined to 49.5 from July’s 52.3. Wyoming’s new-hiring index remained below growth neutral but advanced to 46.4 from July’s 45.8.