Rural Economy Turns Negative

Posted on 05/17/2019 9:08 AM

A key monitor of health of the Midwest's rural economy has turned negative. The Creighton University Rural Mainstreet Index (RMI) for May slumped below growth neutral for the month. According to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy, the RMI for May indicated negative growth for the month for the region, after five months of growth.

The overall index for May slipped to 48.5 from 50.0 in April. This is the first time since November of last year the index has fallen below growth neutral, indicating negative growth for the month. The index ranges between 0 and 100 with 50.0 representing growth neutral.

"The trade tensions and tariffs are hammering the farming economy. Grain farmers throughout the region continue to experience losses produced by trade issues and plentiful global supplies. On the other hand, the expanding U.S. domestic economy is supporting livestock producers in the region. For May, according to bankers, the negatives far outweighed the positives," says Dr. Ernie Goss, who conducts the monthly survey.

The farmland and ranchland-price index for May sank to 41.2 from April's 45.2. This is the 66th straight month the index has remained below growth neutral 50.0.

The May farm equipment-sales index increased to 31.3 from April's 27.4. This marks the 69th straight month that the reading has fallen below growth neutral 50.0.

Bankers were asked to project the growth in farm loan defaults for the next 12 months. On average, bankers expect farm loan defaults to climb by 10.9%. This is more than double the estimated rate of growth just two years ago.

In reaction to higher default rates, almost two-thirds, or 61.8% of bankers, increased collateral requirements, and 41.2% rejected a higher percentage of farm loan applications.

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