Rural Mainstreet Economy Negative, But Few Bankers Tightened Farm Credit Standards

After three straight months of readings slightly above growth neutral, the Creighton University Rural Mainstreet Index (RMI) fell below the growth neutral threshold, 50.0, according to the latest monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

Overall: The region’s overall reading in March sank below the growth neutral threshold. The March index slumped to 45.6 from 50.1 in February. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral.

“The Rural Mainstreet economy continues to experience slow, to no, to negative economic growth. Less than 1% of bankers reported improving economic conditions for the month with 92% indicating no change in economic conditions from February’s slow growth,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.

Farming and ranching: The region’s farmland price index decreased to 63.0 from February’s 63.5. This was the 30th straight month that the index has advanced above 50.0.

Across the region, farmland prices advanced by approximately 9% over the past 12 months. However, bankers, on average, expect only 1% growth over the next 12 months.

Farm equipment sales: As a result of solid farm financial conditions, the farm equipment-sales index climbed to 59.5 from 52.1 in February. The index has risen above growth neutral for 26 of the last 28 months.

Banking: The March loan volume index rose to a strong 63.0 from 48.1 in February and was up from 61.9 in March 2022. The checking-deposit index increased to 40.9 from February’s 38.5, while the index for certificates of deposit and other savings instruments expanded to a record high of 75.0 from February’s solid 57.7.

Bank CEOs were asked what interest rate action the Federal Reserve should undertake at their March 21-22 meetings. Approximately 56.5% recommended a 0.25% rate increase; 30.5% supported a 0.50% boost; and 13% advocated no rate change. However, most survey responses were completed prior to recent bank failures.

According to Jeffrey Gerhart, former Chair of the Independent Community Bankers of America, “It’s too bad that the Fed waited so long to raise interest rates. They could have begun raising interest rates sooner than they did and would not have had to raise them as fast as they’ve done.” Gerhart applauds the Fed for raising interest rates and its willingness to stay the course to get a handle on inflation.

Hiring: The new hiring index for March sank to 45.5 from 48.1 in March. Labor shortages continue to be a significant issue constraining growth for Rural Mainstreet businesses.

Confidence: The slowing economy, higher borrowing costs and labor shortages continued to constrain the business confidence index to a weak 39.1 from 44.4 in February. “Over the past 12 months, the regional confidence index has fallen to levels indicating a very negative outlook,” said Goss.

Home and retail sales: The home-sales index sank to a very weak 36.4 from February’s 37.0. “This is the tenth straight month that the home-sales index has fallen below growth neutral. An almost doubling of the 30-year mortgage rate over the past year and low inventory levels slowed home sales in the region over that time period,” said Goss.

The retail-sales index for March dropped to 41.3 from February’s 50.0. “Bankers were pessimistic regarding the economic outlook with downward pressure on retail sales for the first quarter of 2023,” said Goss.

The 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. The index provides the most current real-time analysis of the rural economy. Goss and Bill McQuillan, former Chairman of the Independent Community Banks of America, created the monthly economic survey and launched it in January 2006.

The March RMI for Illinois increased to 42.0 from February’s 31.0. The farmland-price index climbed to 60.8 from 55.2 in February. The state’s new-hiring index rose to a weak 43.5 from February’s 38.3. Jim Eckert, CEO of Anchor State Bank in Anchor, Ill., stated that, “Given the very mild winter we've had here, farmers expect more insect problems than in recent years. A few oats have been sewn and farmers are looking towards early planting.” USDA data for the top five exported agriculture products for Illinois indicate that for the first quarter of fiscal 2023, the state exported $2 billion. This represented $1.89 per $1,000 of state GDP.