Trouble started brewing for the rural economy earlier this summer. Now it’s been confirmed for five straight months. That’s according to the Rural Mainstreet Index (RMI) from Creighton University.
For August 2022, the RMI sits at 44. That’s down from 46 in July and the fifth straight month of falls. August marks the third consecutive month of 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. “Supply chain disruptions from transportation bottlenecks and labor shortages continue to constrain growth. Farmers and bankers are bracing for escalating interest rates and falling farm commodity prices.”
Bank CEOs were asked their assessment of the Inflation Reduction Act. More than half, or 52%, expect spending and taxes related to the act to increase inflation and add to the federal deficit.
The region’s farmland price index for August declined to 60 from July’s 66, marking the 23rd straight month that the index has moved above growth neutral. However, August’s solid reading was the lowest index since February 2021.
Bankers were asked about Chinese ownership of farmland and food processing in the region. More than nine of 10 bank CEOs, or 92%, regard Chinese purchases of farmland and food processing facilities in the region as a threat to the regional economy.
The August farm equipment-sales index sank to 45.9 from 56.5 in July. After 20 straight months of advancing above growth neutral, the index unexpectedly dropped below the threshold to its lowest level since November 2020.
The August loan volume index climbed to a strong 73.9 from 72 in July.
“Higher costs of farm inputs and softer agriculture commodity prices supported stronger borrowing from farmers,” Goss says.
Even with significant 2022 input price increases over 2021 levels, bankers expect to record a 1.7% decline in farm loan delinquencies over the next 12 months.
Looking forward, the slowing economy, strong energy prices and agriculture input prices constrained the business confidence index to 38 in August, up from 26 in July.
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.
