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Mainstreet Economy

Rural Mainstreet Economy Shrinks for Sixth Straight Month: 1 of 5 Bank CEOs Expect Farmland Prices to Decline in 2023

November 2022 Survey Results at a Glance:

• The overall index fell below growth neutral for the sixth straight month. 
• Economic confidence index plummeted to its lowest level since May 2020.
• Approximately 30.4% of bank CEOs recommend that the Fed cease raising rates.
• Despite the weaker rural outlook, only 13.6% indicated that their bank had increased financial commitments on farm loans. 
• For the 26th straight month, the farmland price index climbed above 50.0. 
• Approximately, 60.9% of bank CEOs expect farmland prices to plateau at current prices, while 21.7% expect prices to decline over the period.

Creighton University Rural Mainstreet Index (RMI)

OMAHA, Neb. (Nov. 17, 2022) — The Creighton University Rural Mainstreet Index (RMI) fell below growth neutral for a sixth consecutive 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 region’s overall reading for November once again sank below the growth-neutral threshold. The November index did increase to a weak 45.7 from 44.2 in October. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral. This was the sixth straight month the overall reading has fallen below growth neutral. 

“The Rural Mainstreet economy is now experiencing a downturn in economic activity. Last month, almost one in four bankers, or 23.1%, reported that the economy was already in a recession,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.

Farming and ranching: The region’s farmland price index rose to 68.2 from October’s 58.0.  This was the 26th straight month that the index has climbed above 50.0.  

Bankers were also asked their expectations for the direction of farmland prices in the next 12 months. Approximately, 60.9% expect farmland prices to plateau at current prices, while 21.7% expect prices to decline over the period. The remaining 17.4% of bankers expect prices to expand, but at a slower pace. 

Farm equipment sales: The farm equipment-sales index jumped to a strong 59.5 from October’s weak 47.8. The index has risen above growth neutral for 22 of the last 24 months. 

This month, bankers were asked if their bank was asking for greater upfront financial commitments for farm loans. Only 13.6% indicated an increase in such commitments. The remaining 86.4% reported no change in upfront commitments for farm loans. 

Banking: The November loan volume index dropped to a still-strong 65.8 from 76.8 in October. The checking-deposit index increased to 47.7 from October’s 34.0, while the index for certificates of deposit and other savings instruments slipped to 45.5 from 46.2 in October.

“Higher farm input costs, greater farm equipment sales, and drought conditions in portions of the region supported strong borrowing from farmers,” said Goss.

Bankers were asked this month about their recommendation for the Federal Reserve’s interest rate action for the next several months. Approximately 30.4% of bank CEOs recommend that the Fed cease raising rates. The largest percentage of bankers, 39.1%, recommend a half-percentage point increase (50 basis points) at its next meetings on December 13-14. 

As stated by Jeff Bonnett, president of Havana National Bank in Havana, Ill., “As the Fed has already raised rates six times (375 bps) in 2022, why not take a break in December and let the latest increase have time to settle itself?” 

Said Bonnett: “A recession of some type seems imminent for the near future.”

Hiring: The new hiring index for November dipped to 49.1 from October’s 49.2. Labor shortages continue to be a significant issue constraining growth for Rural Mainstreet businesses. Despite labor shortages, Rural Mainstreet expanded non-farm employment by 3.6% over the past 12 months. This compares to 3.2% growth for urban areas of the same 10 states for the same period of time.

Confidence: The slowing economy, strong energy prices, higher borrowing costs and elevated agriculture input costs pushed the business confidence index down to 27.3 from 30.8 in October. “This is the lowest reading for the confidence index since May 2020,” said Goss.

Home and retail sales: The home-sales index sank to a very weak 34.8 from October’s 36.0.  “This is the sixth straight month that the home-sales index has fallen below growth neutral. A doubling of the 30-year mortgage rate over the past year slowed home sales in the region over that time period,” said Goss.

The retail-sales index for November weakened to 45.5 from October’s 50.0. “Bankers were pessimistic regarding the economic outlook for the Christmas and holiday buying season as they expect growth at less than 1.0%, or 0.8%, from the 2021 season,” said Goss.

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. Goss and Bill McQuillan, former chairman of the Independent Community Banks of America, created the monthly economic survey and launched it in January 2006.
 

Below are the state reports

Colorado

Colorado’s Rural Mainstreet Index (RMI) for November dipped to 57.9 from October’s 59.7. The farmland- and ranchland-price index expanded to 78.8 from 66.4 in October. Colorado’s new hiring index for November increased to 60.0 from October’s 59.2. Over the past 12 months, U.S. Bureau of Labor Statistics (BLS) data show that Colorado’s Rural Mainstreet Economy experienced an 8.2% increase in non-farm employment, while urban areas in the state gained 3.4% in non-farm employment.

Illinois

The November RMI for Illinois rose to 50.7 from October’s 42.5. The farmland-price index climbed to 69.2 from 59.1 in October. The state’s new-hiring index increased to 50.7 from October’s 50.3. Over the past 12 months, BLS data show that Illinois’ Rural Mainstreet Economy experienced an 2.9% increase in non-farm employment, while urban areas in the state gained 4.4% in non-farm employment. Jim Eckert, president of Anchor State Bank in Anchor, Ill., said, “Harvest is substantially complete in our area. Corn was a little bit better than 2021. August was dry which resulted in soybean yield to be somewhat lower than last year.”

Iowa

Iowa’s November RMI increased to 47.0 from 45.6 in October. Iowa’s farmland-price index climbed to 70.2 from October’s 60.4. Iowa’s new-hiring index for November moved upward slightly to 51.9 from October’s 51.8. Over the past 12 months, BLS data show that Iowa’s Rural Mainstreet Economy experienced a 3.4% increase in non-farm employment, while urban areas in the state gained 1.9% in non-farm employment.

Kansas

The Kansas RMI for November expanded to a weak 43.7 from 39.3 in October. The state’s farmland-price index declined to 57.7 from September’s 60.6. The new-hiring index for Kansas rose to 49.6 from 48.5 in October. Over the past 12 months, BLS data show that Kansas’ Rural Mainstreet Economy experienced a 3.2% increase in non-farm employment, while urban areas in the state gained 1.6% in non-farm employment.

Minnesota

The November RMI for Minnesota increased to 37.2 from October’s 35.7. Minnesota’s farmland-price index jumped to 66.0 from 56.2 in October. The new-hiring index for November increased slightly to 46.7 from 46.6 in October. Over the past 12 months, BLS data show that Minnesota’s Rural Mainstreet Economy experienced a 1.4% increase in non-farm employment, while urban areas in the state gained 3.7% in non-farm employment.

Missouri

Missouri’s November RMI sank to 55.2 from 63.6 in October. The farmland-price index climbed to 77.9 from October’s 68.0. The state’s hiring gauge expanded to 61.3 from 50.1 in October. Over the past 12 months, BLS data show that Missouri’s Rural Mainstreet Economy experienced a 7.3% increase in non-farm employment, while urban areas in the state gained 1.9% in non-farm employment.

Nebraska

The Nebraska RMI remained below growth neutral for November but did rise to 44.7 from October’s 40.1. The state’s farmland-price index rose to 69.2 from last month’s 55.2. Nebraska’s November new-hiring index dipped to 50.7 from 51.5 in October. Over the past 12 months, BLS data show that Nebraska’s Rural Mainstreet Economy experienced a 2.9% increase in non-farm employment, while urban areas in the state added 2.5% in non-farm employment.

North Dakota

North Dakota’s RMI for November climbed to 54.9 from October’s 49.7. The state’s farmland-price index expanded to 73.4 from 62.1 in October. The state’s new-hiring index rose to 55.9 from October’s 54.0. Over the past 12 months, BLS data show that North Dakota’s Rural Mainstreet Economy experienced a 7.0% increase in non-farm employment, while urban areas in the state added 1.0% in non-farm employment.

South Dakota

The November RMI for South Dakota increased slightly to 38.9 from 38.8 in October. The state’s farmland-price index climbed to 66.7 from 57.5 in October. South Dakota’s November hiring index measured 47.5 compared to 48.2 in October. Over the past 12 months, BLS data show that South Dakota’s Rural Mainstreet Economy experienced a 0.6% increase in non-farm employment, while urban areas in the state gained 4.4% in non-farm employment.

Wyoming

The November RMI for Wyoming increased to 47.3 from 44.5 in October. The November farmland- and ranchland-price index expanded to 70.3 from 53.4 in October. Wyoming’s new-hiring index increased to 52.0 from October’s 51.2. Over the past 12 months, BLS data show that Wyoming’s Rural Mainstreet Economy experienced a 3.3% increase in non-farm employment, while urban areas in the state gained 1.3% in non-farm employment.

Tables 1 and 2 summarize the survey findings. Next month’s survey results will be released on the third Thursday of the month, Dec. 15, 2022.