Rural Economy Grows in February, But at Slower Rate
Feb 22, 2011
The rural economy grew for the fourth straight month, but the pace of growth slowed in February according to the Rural Mainstreet survey. Rising farm income and improving banking conditions are showing signs of sustained growth in the rural economy.
The overall Rural Mainstreet Index (RMI) declined to 55.3 from 59.3 in January, according to the survey of bank CEOs in a 10-state region. This marks the fourth straight month the index is above growth neutral 50.0 and well above the reading of 36.6 last February.
“An expanding global economy, a cheap dollar and alternative energy production are pushing the Rural Mainstreet economy into territory not experienced since the early 1970s,” said Creighton University economist Ernie Goss, co-author of the report.
Farmland prices continue to rise in 2011 as the farmland price index remained above growth neutral for the 13th straight month at 75.9, a slight increase from January’s 75.4. Respondents noted they expect the higher inputs may constrain the rate of growth in 2011 compared to 2010.
“Based on our survey of bankers, farmland prices continue to grow at an annualized rate of more than 15 percent and agriculture equipment sellers are experiencing surging sales across most of the region,” said Goss.
The strong rural economy and healthy cash flows have dampened the growth for lending as the loan volume index remained below growth neutral in February at 39.0, but above January’s record low of 33.9. The other two banking indicators, checking deposits and certificate of deposits, remained above growth neutral for the 12 straight month.
The rural economy continued to add jobs in January as the jobs index was above growth neutral, but unchanged from the previous month at 52.5. “For this part of the country, rural areas are clearly outpacing the urban areas in terms of job growth. Even with recent job gains, the Rural Mainstreet economy has 115,100 fewer jobs today (2.4 percent) than before the recession,” said Goss.
Bankers expect sustainable growth over the next six months in the rural economy as the economic confidence index improved to 70.9 in February from January’s reading of 63.4.
Respondents were also asked how the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act would likely affect community banks. Roughly 81% expected negative impacts and only slightly less than 14% anticipated positive impacts. Of those expecting negative results, 44% expected “very negative” impacts.
The rural economy continues to lead the way in a slowly improving economy. Strong farm income and farmer spending is keeping the rural economy steaming ahead. High grain prices and expectations of record planted acres could bring record production and profits to the rural economy in 2011.
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