December Rural Mainstreet Index Rises Above Growth Neutral

The Creighton University Rural Mainstreet Index (RMI) for December remained above growth neutral for the fourth straight month and for the 10th time in the past 12 months, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

Overall: While the overall index for December fell to 50.2 from 54.2 in November, it marked the tenth time in 2019 that the index has remained above growth neutral 50.0.

“Federal agriculture crop support payments and somewhat higher grain prices have boosted the Rural Mainstreet Index above growth neutral for the month.”

“Bank CEOs, on average, expect approximately 12.4% of grain farmers to experience financial losses for 2020. However, this is down from last year at this time when bankers projected 15.3% of grain farmers to experience negative cash flows for 2019,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.

Jeff Bonnett, president of Havana National Bank in Havana, Illinois, reported, “If grain prices remain where they are today, we will have a small percentage of our Ag borrowers struggle with cashflow.”

Farming and ranching: The farmland and ranchland-price index soared to 52.8 from November’s weak 40.4. This is the first time since November 2013 that the index has risen above growth neutral, 50.0.

The November farm equipment-sales index sank to 27.9 from November’s 37.5. This marks the 75th month that the reading has remained below growth neutral 50.0.

Banking: Borrowing by farmers weakened again from December. The borrowing index declined to 50.0 from November’s 51.4. The checking-deposit index fell to a still strong 61.1 from November’s 68.1, while the index for certificates of deposit and other savings instruments slipped to 50.0 from 51.4 in November.

This month, bankers were asked to project the level of farm loan defaults for 2020. “One of nine bank CEOs expect 2020 farm loan defaults to expand by 10% to 20%. On average bankers expect 2020 farm loan defaults to grow by approximately 4.0%. This is down from an anticipated gain of 4.4% for 2019 recorded last December,” said Goss.

Bankers were also asked about their bank’s response to weak farm income. Almost two-thirds, or 65.7%, indicated their bank had increased collateral requirements, while 34.3% reported that their bank had rejected a higher percentage of farm loan applications.

Hiring: The employment gauge declined to a still healthy 60.0 from November’s 65.3. Despite the trade war and weaker manufacturing in rural areas, Rural Mainstreet businesses continue to hire at a solid pace.

Over the past 12 months, the Rural Mainstreet economy added jobs at a 0.8% pace, or below the pace of urban area growth of 1.1% for the same period. Rural areas of two Mainstreet states, Iowa, and North Dakota, lost jobs over the past 12 months.

Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, increased to a still weak 45.8 from November’s 44.4, and continues to indicate a negative economic outlook among bankers. “The trade war with China and the lack of passage of the USMCA (NAFTA’s replacement) continued to dampen the economic outlook for the region,” said Goss.

According to Lonnie Clark, President of the State Bank of Chandler in Chandler, Minnesota,” The China trade issues need to come to a final resolution soon to take this stress off our farmers.”

Home and retail sales: The home-sales index climbed to a healthy 58.6 from November’s 55.7. The retail sales index for December increased to 51.4 from 50.0 in November.

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 December fell to 53.0 from November’s 58.0. The farmland and ranchland-price index advanced to 52.9 from November’s 41.2. Colorado’s hiring index for December declined to 59.7 from 71.8 in November. Over the past 12 months rural areas in Colorado have experienced job growth of 0.2% compared to a stronger 2.2% for urban areas of the state.

Illinois: The December RMI for Illinois sank to 53.8 from 54.5 in November. The farmland-price index increased to 53.1 from November’s 40.3. The state’s new-hiring index declined to 61.2 from last month’s 62.5. Over the past 12 months rural areas in Illinois have experienced job gains of 2.8% compared to a weaker 2.8% for urban areas of the state.

Iowa: The December RMI for Iowa increased to 53.5 from November’s 52.5. Iowa’s farmland-price index soared to 52.5 from November’s 39.7. Iowa’s new-hiring index for December slumped to 48.7 from November’s 57.1. Over the past 12 months rural areas in Iowa have experienced job losses with employment growth at minus 0.2% compared to a stronger 1.1% for urban areas of the state.

Kansas: The Kansas RMI for December slipped to 52.6 from November’s 55.0. The state’s farmland-price index improved to 52.9 from 39.3 in November. The new-hiring index for Kansas advanced to 61.1 from 56.7 in November. Over the past 12 months rural areas in Kansas have experienced job additions of 1.1% compared to a stronger 1.4% for urban areas of the state.

Minnesota: The December RMI for Minnesota decreased to 53.4 from November’s 55.3. Minnesota’s farmland-price index expanded to 53.0 from November’s 40.5. The new-hiring index for December dipped to 60.3 from November’s 64.6. Over the past 12 months rural areas in Minnesota have experienced job growth of 1.8% compared to job gains of 0.1% for urban areas of the state.

Missouri: The December RMI for Missouri slipped to 48.1 from November’s growth neutral 50.0. The farmland-price index climbed to 52.0 from November’s 39.1. Missouri’s new-hiring index for December rose to 50.0 from November’s 49.1. Over the past 12 months rural areas in Missouri have experienced job addition of 0.05% compared to a much stronger gain of 1.3% for urban areas of the state.

Nebraska: The Nebraska RMI for December sank to a regional low of 44.3 from November’s 51.0. The state’s farmland-price index sank to jumped to 52.1 from last month’s 39.3. Nebraska’s new-hiring index improved to 53.4 from November’s 48.6. Over the past 12 months rural areas in Nebraska have added jobs at a rate of 0.2% compared to a gain of 2.5% for urban areas of the state.

North Dakota: The North Dakota RMI for December declined to 51.7 from November’s 55.0. The state’s farmland-price index dipped to 40.1 from 40.5 in November. The state’s new-hiring index plummeted to 47.9 from November’s 63.9. Over the past 12 months rural areas in North Dakota have experienced job losses at the rate of minus 0.3% compared to +0.3% for urban areas of the state.

South Dakota: The December RMI for South Dakota remained above growth neutral for the month, though it declined to 53.3 from November’s reginal high of 56.2. The state’s farmland-price index jumped to 53.0 from November’s 40.7. South Dakota’s new-hiring index slipped to a very strong 63.5 from October’s 64.5. Over the past 12 months rural areas in South Dakota have experienced job growth of 1.6% compared to 2.4% for urban areas of the state.

Wyoming: The December RMI for Wyoming sank to 50.2 from November’s 55.3. The December farmland and ranchland-price index climbed to 52.4 from 40.5 in November. Wyoming’s new-hiring index fell to 54.0 from November’s 64.7. Over the past 12 months rural areas in Wyoming have experienced little or no growth in both rural and urban areas of the state.

Tables 1 and 2 summarize the survey findings. Next month’s survey results will be released on the third Thursday of the month, Jan. 16.

Source: Creighton University