Rural Mainstreet Economy Stabilizes in Growth Range

Posted on 01/21/2021 12:37 PM

For the third time in the past four months, the Creighton University Rural Mainstreet Index (RMI) climbed 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, the index increased to its second highest level since January 2020.          

The overall index for January rose to 52.0 from December’s 51.6. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.

“Recent sharp improvements in agriculture commodity prices, federal farm support payments, and Federal Reserve’s record low short-term interest rates have underpinned the rural mainstreet economy in a solid and positive growth range. However, the rural economy remains well below pre-pandemic levels,” says Creighton University’s Dr. Ernie Goss, who conducts the survey.  

“Bankers report their biggest economic concerns for 2021 are excessive inflation and higher long-term interest rates,” states Goss.

Jim Levick, president of Nebraska State Bank in Oshkosh, Nebraska states, “I feel the economy is moving in a positive direction that can be rattled by a combination of higher taxes, higher inflation, and a return of stricter regulation.”

Farming and ranching: For a fourth straight month, the farmland price index advanced above growth neutral. The January reading climbed to 56.3, its highest level since July 2013, and was up from 55.0 in December. This is first time since 2013 that Creighton’s survey has recorded four straight months of above growth neutral farmland prices.

The January farm equipment-sales index rose to 54.5, its highest reading since April 2013, and up from 50.2 in December. After 86 straight months of readings below growth neutral, farm equipment sales bounced into growth territory for the last two months.    

“As a result of the rapidly improving farm economy, the farm Exchange Traded Fund (MOO) traded on the New York Stock Exchange has risen to a record high of $83.32,” notes Goss.  

Banking: Bankers once again report anemic loan volumes. The January loan volume index dropped to 33.9 from December’s 43.7, but up from November’s record low 25.8. The checking-deposit index soared to record high 88.0 from December’s 78.1, while the index for certificates of deposit, and other savings instruments increased to 46.0 from 42.2 in December.

“Approximately 44% of bank CEOs expect low loan demand to be the greatest issue facing their banks for 2021. This is up from 7% that recorded this as a top concern last year at this time,” reports Goss.

“One year ago, 32% of bankers indicated rising loan defaults and bankruptcies were their greatest concern for 2020. This is significantly above the 4% of bankers that register this as their greatest 2021 issue,” notes Goss.    
 
However, 24% indicate rising competition from untaxed credit unions and Farm Credit posed the greatest 2021 bank threat. This is well up from the 5% recorded last year at this time. Joseph Anglin, senior vice president and chief financial officer at Pioneer Bank & Trust in Rapid City, South Dakota, says, “We compete day-in-and-day-out with them and they simply have a 21% advantage that they can leverage over tax paying banks.”

Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, declined slightly to a still healthy 60.0 from December’s 62.9. “Federal farm support payments, improving gain prices, and advancing exports have supported confidence offsetting negatives from pandemic ravaged retail and leisure and hospitality companies in rural areas,” states Goss.

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.   


 

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