Rural Economy Growing Slowly

Includes: DBA
by: T. Marc Schober

The rural economy grew steadily over the past month, although weak crop prices has kept growth modest. Farm equipment sales dropped below growth neutral as farmers fear lower than expected income.

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The Rural Mainstreet Index (RMI) decreased to 55.8 in August, from 57.3 in last month's survey. Ernie Goss, economist at Creighton University, commented, "Last year at this time the drought was weighing on the Rural Mainstreet Economy. This year, weaker agriculture commodity prices are having a dampening impact on the farm economy and businesses tied to agriculture. Even so, the economy continues to expand at a reasonable pace according to bank CEOs."

The farmland price index decreased this month for the eighth time in the last nine months, but remains above growth neutral at 55.8. Goss noted, "Our farmland-price index has been above growth neutral since February 2010. However, lower farm commodity prices are slowing growth in farmland prices. I expect farmland price growth to continue to weaken as agriculture commodity prices soften."

Bankers estimate that only 20% of all farmland transactions are purchased by investors; this was the percentage given in the spring when Bankers were asked the same question. CEO of Citizens State Bank in Lena, IL, Fritz Kuhlmeier said," Local farmers have completely driven the nonfarmer investors out of the farmland market by elevating the prices over returns investors demand."

For the first time since 2009, the farm equipment sales dipped below growth neutral to 49.2, from 50.0 in July.

The loan-volume index decreased to a still healthy 70.5, from July's 75.7. The checking-deposit index declined to 51.7, from July's 53.7.

The hiring index declined to a 59.2 in August, from 60.7 in July. "Growth in hiring is definitely slowing for the region even though it remains positive. Businesses directly linked to agriculture and energy are either shedding jobs or adding them at a slow pace," said Goss.

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This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The 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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.