Mainstreet Economy

Rural Mainstreet Index Weakens for February: Trade Deals Push Economic Confidence to Seven-Year High

February Survey Results at a Glance:

  • Overall index remained above growth neutral, but declined from January’s solid reading.
  • The signing of USMCA and the Phase 1 trade agreement with China boosted the monthly economic confidence index to a seven-year high.
  • Over the past four years, average annual cash rents on nonpasture farmland declined by only 1.5% to $218.
  • Over the past year, the percentage of bank CEOs reporting an upturn in farm loan rejections declined from 30.3% to 3.1%.
  • On average, bank CEOs reported that 17.3% of farmland purchases were cash sales. This is down from 22.2% recorded five years ago.
  • Approximately four in 10 bankers indicated that their banks had restructured farm loans due to a weak farm economy.

OMAHA, Neb. (Feb. 20, 2020) – The Creighton University Rural Mainstreet Index (RMI) declined in February, but remained above growth neutral. This the sixth straight month the reading has moved above growth neutral, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

Overall: The overall index for February declined to 51.6 from 55.9 in January.

“Due to weak farm income, 40.6% of bankers reported that their banks had restructured loans while only 3.1% indicated that their banks had rejected a higher percentage of farmland loans. Approximately, one-fourth of bankers indicated no change in lending practices,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.

Farming and ranching: After moving above growth neutral in December, the farmland and ranchland-price index has fallen below growth neutral for two consecutive months. Even so, February’s reading improved slightly to 46.8 from January’s 45.6. This is the 74th time in the past 75 months that the index has been below growth neutral.

On average, bankers reported annual cash rents for nonpasture farmland of $218 per acre. This is down by only 1.5% from the reading recorded four years ago.

The February farm equipment-sales index increased to a weak 37.9 from January’s 35.0. This marks the 77th month that the reading has remained below growth neutral 50.0.

Banking: Borrowing by farmers remained weak for February. The borrowing index rose to 50.0 from 48.5 in January, which was its lowest level since February 2013. The checking-deposit index tumbled to 60.9 from January’s 76.5, while the index for certificates of deposit and other savings instruments plummeted to 50.0 from 60.3 in January.

This month bankers were asked what percentage of farmland purchases were cash sales. On average, bank CEOs reported that 17.3% of farmland purchases were cash sales. This is down from five years ago when bankers indicated that 22.2% of farmland sales were cash sales.

Hiring: The employment gauge dipped to a still solid 57.8 from January’s very healthy 61.8. Despite the ongoing trade war and weaker manufacturing in rural areas, Rural Mainstreet businesses continue to hire at a solid pace.

Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, increased to a healthy 58.1 from January’s weak 50.0. February’s reading is the highest recorded since June 2013.

“The signing of the Phase 1 trade agreement with China and the USMCA boosted economic confidence across the region with expectations of higher international agriculture sales. The last time Creighton recorded economic confidence this high was when grain prices were double today’s values in 2013,” said Goss.

Home and retail sales: The home-sales index slipped to a still healthy 58.1 from January’s 59.1. The retail sales index for February increased to 46.9 from 45.6 in January.

Each month, community bank presidents and CEOs in nonurban agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

This survey represents an early snapshot of the economy of rural agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (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. Goss and Bill McQuillan, former chairman of the Independent Community Banks of America, created the monthly economic survey in 2005.

Below are the state reports:

Colorado: Colorado’s Rural Mainstreet Index (RMI) for February fell to 51.0 from January’s 56.2. The farmland and ranchland-price index rose to 46.2 from 45.3 in January. Colorado’s hiring index for February plummeted to 50.4 from 62.2 in January. Over the past 12 months rural areas in Colorado have experienced job losses of minus 0.8% compared to a stronger 2.4% for urban areas of the state.

Illinois: The February RMI for Illinois declined to 56.6 from 58.1 in January. The farmland-price index advanced to 48.1 from January’s 45.9. The state’s new-hiring index decreased to 67.2 from last month’s 72.2. Over the past 12 months rural areas in Illinois have experienced job gains of 1.9% compared to a weaker 0.6% for urban areas of the state.

Iowa: The February RMI for Iowa sank to 50.1 from January’s 56.1. Iowa’s farmland-price index inched higher to 45.9 from January’s 45.3. Iowa’s new-hiring index for February slumped to 47.7 from January’s 57.2. Over the past 12 months rural areas in Iowa have experienced job losses with employment growth at minus 1.2% compared to a stronger addition of 0.7% for urban areas of the state.

Kansas: The Kansas RMI for February declined to 54.0 from January’s 57.0. The state’s farmland-price index sank to 44.3 from 45.6 in January. The new-hiring index for Kansas declined to 59.4 from 64.2 in January. Over the past 12 months rural areas in Kansas have experienced job additions of 0.8% compared to a stronger 1.8% for urban areas of the state.

Minnesota: The February RMI for Minnesota improved to 58.3 from January’s 57.6. Minnesota’s farmland-price index improved to 47.4 from January’s 45.8. The new-hiring index for February sank to 60.9 from January’s 68.5. Over the past 12 months rural areas in Minnesota have experienced job growth of 0.2% compared to job gains of 0.1% for urban areas of the state.

Missouri: The February RMI for Missouri advanced to 51.5 from January’s 48.4. The farmland-price index climbed to 46.3 from January’s 45.2. Missouri’s new-hiring index for February was a tepid 51.7, down from January’s 55.9. Over the past 12 months rural areas in Missouri have experienced no job gains compared to an addition of 0.7% for urban areas of the state.

Nebraska: The Nebraska RMI for February sank to 48.3 from January’s 49.1. The state’s farmland-price index rose to 45.3 from last month’s 44.8. Nebraska’s new-hiring index slumped to 42.3 from January’s 45.8. Over the past 12 months rural areas in Nebraska lost jobs at a rate of minus 1.0% compared to a gain of 2.8% for urban areas of the state.

North Dakota: The North Dakota RMI for February sank to 51.7 from 56.0 in January. The state’s farmland-price index increased to 46.4 from 45.2 in January. The state’s new-hiring index softened to 52.4 from January’s 56.7. Over the past 12 months rural areas in North Dakota have experienced a job growth of 0.4% compared to 0.7% for urban areas of the state.

South Dakota: The February RMI for South Dakota remained above growth neutral for the month, increasing to 57.8 from January’s 57.4. The state’s farmland-price index climbed to 47.6 from January’s 45.7. South Dakota’s new-hiring index slipped to a strong 63.5 from January’s 67.2. Over the past 12 months rural areas in South Dakota have experienced job growth of 1.3% compared to 0.8% for urban areas of the state.

Wyoming: The February RMI for Wyoming slumped to 48.2 from January’s 55.7. The February farmland and ranchland-price index sank to 44.2 from 45.1 in January. Wyoming’s new-hiring index tumbled to 41.9 from January’s 54.6. Over the past 12 months rural areas in Wyoming have lost jobs at a rate of minus 1.7% as urban areas lost employment at the rate of minus 0.2%.

Tables 1 and 2 summarize the survey findings. Next month’s survey results will be released on the third Thursday of the month, March 19.