Mainstreet Economy

Rural Mainstreet Index Below Growth-Neutral for September:
Four of Five Bank CEOs Report Loan Restructuring

September Survey Results at a Glance:

* For a 13th straight month, the Rural Mainstreet Index fell below growth neutral.
* Almost 4 of 5 bank CEOs indicated restructuring farm loans due to weak farm income.
* Farmland prices remained below growth neutral for the 34th consecutive month.
* Almost one-fifth of bankers reported increasing rejection rates on agricultural loans due to weak farm income.
 
For Immediate Release:  Sept. 15, 2016
OMAHA, Neb. – The Creighton University Rural Mainstreet Index sank for September and remained below growth neutral for the 13th straight month, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.  
 
Overall: The index, which ranges between 0 and 100 fell to 37.3 from 41.1 in August.  This month’s reading is well off the index for September 2015 when it stood at 49.0. 
 
“According to the USDA, 2016 net farm income is expected to decline by almost 12 percent from 2015 levels. Even with an anticipated 25 percent increase in government support payments for 2016, the Rural Mainstreet economy continues to falter according to our surveys of bankers,” said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.
 
“Even though loan defaults have changed little over the past year, downturns in farm income over the past three years are pushing bankers to change the terms of farm loans.  According to Creighton’s September survey, almost four of five, or 79.1 percent, of bank CEOs reported a significant upturn in loan restructuring due to weak farm income,” said Goss.
 
Jim Eckert, president of Anchor State Bank in Anchor, Illinois, expects lower agriculture commodity prices to cause all but the best capitalized producers to only break even or lose money for 2016. 
 
Farming and ranching: The farmland and ranchland-price index for September expanded to a frail 30.3 from 25.6 in August. This is the 34th straight month the index has languished below growth neutral 50.0.
 
The September farm equipment-sales index sank to 14.3 from August’s 14.8. “Weakness in farm income and low agricultural commodity prices continue to restrain the sale of agriculture equipment across the region. This is having a significant and negative impact on both farm equipment dealers and agricultural equipment manufacturers across the region,” said Goss.
 
One bank CEO indicated there would be substantial 2017 impacts from current conditions. The CEO is concerned that bank regulators will not provide necessary “breathing room” for banks to weather plummeting farm income.
 
Banking: Borrowing by farmers remains strong as the September loan-volume index slipped to a strong 72.1 from last month’s 78.3. The checking-deposit index climbed to 50.0 from 41.3 in August, while the index for certificates of deposit and other savings instruments improved to 51.5 from 44.5 in August.
 
Hiring: After moving below growth neutral 50.0 for July and August, the Rural Mainstreet hiring index advanced to a solid 54.8 for September, up briskly from August’s 47.9 and July’s 49.0.  For the region, Rural Mainstreet employment is down by 0.9 percent over the past 12 months.
 
But some bankers reported significant pullbacks in employment. For example, James Shafer, CEO of the First National Bank in Tremont, Illinois, reported, “Continued (loan) restructuring and layoffs by Caterpillar are having a strong, negative impact in our immediate area.”
 
Confidence: The confidence index, which reflects expectations for the economy six months out, plummeted to 21.5 from August’s 27.2, indicating an intense pessimistic outlook among bankers. “Recent downturns in already weak agriculture commodity prices pushed banker’s economic outlook even lower for the month,” said Goss.
 
Home and retail sales: Home sales remain the positive indicator of the Rural Mainstreet economy with a strong September index of 57.2, though it was down slightly from 58.9 in August. The September retail-sales index slumped to 33.4 from August’s very weak 38.1. “Despite low inventories of homes for sale, Rural Mainstreet home sales continue on a solid trajectory, but rural retailers, much like their urban counterparts, are experiencing downturns in sales,” said Goss.