Rural Economy Continues to Expand, But at Slower Pace

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by: T. Marc Schober

The rural economy improved in July for the ninth straight month, although slower growth in farmland sales and farm equipment have slowed the rate of expansion. Bankers remain positive on the outlook for the rural economy, as agriculturally dependent areas continue to expand at a positive pace.

The overall Rural Mainstreet Index (RMI) declined slightly to 55.7 from 56.0 in June, according to the survey of bank CEOs in a 10-state region (click here). June’s reading marks the ninth straight month the index is above growth neutral 50.0, but below the reading of 59.4 last May.

“Even though the Rural Mainstreet economy is expanding, many of our indicators are trending lower,” said Creighton University economist Ernie Goss, co-author of the report.

Agriculture

Farmland prices remain above growth neutral for the 18th straight month, but the farmland index continued to slip to 59.4 from June’s 620. “Even though this is the 18th straight month the index was above growth neutral, we are tracking consistent slippage in farmland price growth as the index has declined for three straight months. Consistent with the decline in farmland price growth, the farm equipment sales index sank for the fourth consecutive month to 53.7 from 63.1 in June,” said Goss.

Roughly 68% of bankers supported the removal of blenders’ tax credit for ethanol as a part of U.S. debt reduction and 35% supported phasing out agriculture support payments over five years. Dan Coup, of First National, noted however, “If the government wants to continue with a cheap food policy, payment support needs to remain. Subsidy on crop insurance premiums is a must.”

Banking

Loan volumes increased in July to 59.0 from a reading of 59.0 in June and certificate of deposits increased to 43.7 in July from 41.7, although checking deposits declined to 52.8 from 59.7 in June.

After seven straight months of job expansion, the rural economy saw a slight loss in jobs, with the July index at 49.3, down from June’s 51.5. “Supported by continuing strength in the energy and farm sectors, the pace of job growth for the Rural Mainstreet economy remains much stronger than urban areas of the 10-state survey region,” commented Goss.

Rural bankers continue to expect sustainable growth over the next six months in the rural economy, although the economic confidence index decreased to 55.0 from June’s reading of 55.3. “Even though confidence remains fairly robust, flooding and other weather related issues in areas of the region eroded confidence among some of the bankers,” noted Goss.

Survey

The Rural Mainstreet Survey is a snapshot of the rural economy covering 10 states, focusing on roughly 200 rural communities with an average population of 1,300. The survey respondents include community bank presidents and CEOs located in Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.