For a sixth consecutive month, the rural economy has posted signs of weakness. That’s according to the Rural Mainstreet Index (RMI) from Creighton University.
For November 2022, the RMI sits at 45.7. That is up slightly from October’s 44.2. This was the fifth consecutive month the overall reading has fallen below growth neutral. The index ranges between 0 and 100 with a reading of 50 representing growth neutral and is generated by a monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
“The Rural Mainstreet economy is now experiencing a downturn in economic activity,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. “Last month, almost one in four bankers reported that the economy was already in a recession.”
The region’s farmland price index rose to 68.2 from October’s 58. This was the 26th straight month that the index has climbed above 50.
However, 61% of bankers expect farmland prices to plateau at current prices, while 22% expect prices to decline in the next 12 months. The remaining 17% of bankers expect prices to expand, but at a slower pace.
The farm equipment-sales index jumped to a strong 59.5 from October’s weak 47.8. The index has risen above growth neutral for 22 of the last 24 months.
This month, bankers were asked if their bank was asking for greater upfront financial commitments for farm loans. Only 14% indicated an increase in such commitments. The remaining 86% reported no change in upfront commitments for farm loans.
The November loan volume index dropped to a still strong 65.8 from 76.8 in October, and the checking-deposit index increased to 48 from October’s 34.
“Higher farm input costs, greater farm equipment sales, and drought conditions in portions of the region supported strong borrowing from farmers,” Goss says.
Bankers were asked this month about their recommendation for the Federal Reserve’s interest rate action for the next several months. Thirty percent of bank CEOs recommend that the Fed cease raising rates. The largest percentage of bankers, 39%, recommend a half-percentage point increase (50 basis points) at its next meetings on Dec. 13-14.
“As the Fed has already raised rates six times (375 bps) in 2022, why not take a break in December and let the latest increase have time to settle itself?” shared Jeff Bonnett, president of Havana National Bank in Havana, Ill. “A recession of some type seems imminent for the near future.”
The slowing economy, strong energy prices, higher borrowing costs and elevated agriculture input costs pushed the business confidence index down to 27.3 from 30.8 in October.
“This is the lowest reading for the confidence index since May 2020,” Goss says.
The RMI, which started in 2005, represents an early snapshot of the economy of rural agricultural and energy-dependent portions of the nation. It focuses on 200 rural communities with an average population of 1,300.
