After declining below growth neutral for March, the overall Rural Mainstreet Index for June expanded above the threshold for a third straight month to its highest level since May 2022, according to the June monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
The region’s overall reading in June climbed to 56.9, the highest reading since May 2022 and up from last month’s 55.8. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral.
“After negative growth during the first quarter of this year, the Rural Mainstreet economy experienced positive, but slow, economic growth for all of the second quarter. Only 3.4% of bankers reported a downturn in economic conditions for the month,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business. in a news release.
Farming and ranching land prices: The region’s farmland price index rose to 59.3 in June from 56.3 in May. This was the 33rd straight month that the index has advanced above 50.0.
Farm equipment sales: The farm equipment-sales index fell to a weak 48.3 from 50.2 in May. Farm equipment sales declined for only the third time in the past 31 months. “Higher borrowing costs have begun to negatively impact purchases of farm equipment,” said Mr. Goss.
More than half of bankers reported that higher interest rates were impairing farm equipment purchases.
On the other hand, Mike Van Erdewyk, CEO of Breda Savings Bank in Breda said, “Higher interest rates are not having a significant impact on farm operations yet as many farmers have paid down operating lines with grain sales.”
Banking: The June loan volume index expanded to a strong 79.2 from May’s 75.0. After two consecutive low monthly readings, the checking-deposit index increased to a weak 37.5 in June from 22.0 in May, while the index for certificates of deposit and other savings instruments soared to 76.8 for June from May’s 70.0.
Bank CEOs ranked Federal Reserve rate hikes as the greatest challenge in the 12 months ahead with rising bank regulations ranked as a distant second.
“Bankers continue to have a very positive outlook for the payment of farm loans with an estimated loan default rate rising less than 1% over the next 12 months,” said Mr. Goss.
“Higher short-term interest rates produced by Federal Reserve rate hikes over the past year have posed a significant threat to community banks by expanding the costs of customer deposits while the rates on bank loans have risen little over the same time period,” he added.
The region exported $13.3 billion of agriculture and livestock in 2022. This represented 26.5% growth from the previous year. Mexico was the chief destination, accounting for 55.2% of the region’s farm and ranching exports.
Hiring: The new hiring index for June climbed to 58.9 from May’s 58.0. Over the past 12 months, the Rural Mainstreet Economy has expanded jobs by 2.2% compared to a lower 1.5% for urban areas of the same 10 states.
“The fear of a drought seems to be bigger than fear of a recession,” said Mike Van Erdewyk, CEO of Breda Savings Bank.
Confidence: Higher interest rates, deposit outflows and a rising regulator environment continued to constrain the business confidence index to a weak 43.1, but up from 38.5 in May. “Over the past 12 months, the regional confidence index has fallen to levels indicating a negative outlook,” said Mr. Goss.
Home and retail sales: June home-sales sank to 48.2 from May’s 55.8. “Higher mortgage rates and a shortage of houses for sale constrained sales across the region,” said Mr. Goss.
The retail-sales index for June expanded to 56.9 from May’s 56.0. “Bankers are getting more optimistic regarding the economic outlook for retail sales for the third quarter after an OK quarter two,” he said.
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. Mr. Goss and Bill McQuillan, former Chairman of the Independent Community Banks of America, created the monthly economic survey and launched it in January 2006.
In Iowa, the state’s June RMI expanded to 51.7 from 50.8 in May. Iowa’s farmland-price index advanced to 55.6 from May’s 50.6. Iowa’s new-hiring index for June moved higher to 52.4 from 48.8 in May. The state exported $2.1 billion of agriculture and livestock in 2022. This represented 4.3% growth from the previous year. Mexico was the chief destination, capturing 70.9% of the state’s farm exports.
