By Creighton University
The Creighton University Rural Mainstreet Index sprang higher in February from January's below growth neutral reading. This is the first time since July 2015 the overall index has advanced above growth neutral, 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 overall index soared to 54.8 from 46.8 in January, the highest reading for the overall index since May 2014. The index ranges between 0 and 100 with 50.0 representing growth neutral.
"Given that fewer than one in four, or 23.9 percent, of bankers reported economic growth in their area, the solid February reading surprised me. However, weak agriculture commodity prices continue to weigh on the rural economy," said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.
Jim Eckert, president of Anchor State Bank in Anchor, Illinois, reported, "We are seeing farmers with somewhat reduced income and moderate operating loan carryovers. However, without rain prior to planting, 2018 could be a bad year."
Farming and ranching: The farmland and ranchland-price index for February rose to 46.3 from 42.2 for January. This is the highest reading since July 2014, but it is the 51st straight month the index has fallen below growth neutral 50.0.
The February farm equipment-sales index jumped to 33.8 from January's very weak 24.4. This marks the 54th consecutive month the reading has remained below growth neutral, 50.0.
Almost two-thirds, or 63.5% of bankers, project that agriculture equipment sales will decline further in 2018. Only 4.9 percent of bank CEOs expect farm equipment sales to expand in 2018. Even so, these projections are an improvement from February 2017, when 73.9 percent of bank CEOs expected a slump in farm equipment sales for the year, and 4.3 percent anticipated an increase in equipment sales. On average a decline of seven percent is expected for 2018.
Banking: Borrowing by farmers sank for February, as the loan-volume index stood at 53.8 from 54.4 in January. The checking-deposit index fell to 48.8 from January's 57.8, while the index for certificates of deposit and other savings instruments advanced to 45.2 from 43.5 in January.
Bank CEOs were asked how their banks were dealing with weak farm income. More than four in 10, or 45.2%, reported increasing collateral requirements, 21.4% indicated rejecting a higher percent of loan applications, and 11.9% reported reducing the average size of farm loans.
On the other hand, one third reported no change in their farm lending practices. As stated by Jeffrey Gerhart, chairman of Bank of Newman Grove, Newman Grove, Nebraska, "Our response to a weak farm economy is to continue working closely with our customers to get them through the tough times, just like we've always done."
Hiring: The employment gauge climbed to 58.8 from January's 50.0. The Rural Mainstreet economy experienced year-over-year job growth of only 0.4% compared to 1.3% for urban areas of the states.
Confidence: The confidence index, which reflects expectations for the economy six months out, rose to 52.4 from 46.7 in January indicating rising economic optimism among bankers. "However, an unresolved North America Free Trade Agreement, a weak USDA 2018 farm income projection, and anemic agriculture commodity prices continue to undermine economic optimism," said Goss.
Home and retail sales: The home-sales index moved slightly higher for the Rural Mainstreet economy in February, rising to 52.4 from January's 51.2. The February retail-sales index improved to a below growth neutral 47.6 from January's 43.5.
Each month, community bank presidents and CEOs in nonurban 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 (RMI) 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, former chairman of the Independent Community Banks of America, created the monthly economic survey in 2005.