Rural Bank CEOs Report Continuing Losses of Deposits

The overall Rural Mainstreet Index (RMI) sank to a growth neutral reading for August after four straight months of readings above 50.0, according to a monthly survey of rural bank CEOs.

Overall: The region’s overall reading in August fell to 50.0 from July’s much stronger 55.6. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral. “This is the fifth consecutive month that the overall RMI has moved at or above growth neutral. However, I expect recent pullbacks in growth to push the Federal Reserve to forgo an interest rate increase at its next meetings on September 19-20,”saysCreightonUniversity’s Dr. Ernie Goss, who conducts the survey.

A large share of bankers support a cessation of rate increases, Goss says. States Larry Winum, CEO of Glenwood State Bank in Glenwood, Iowa: “In my view, the Federal Reserve should take a long pause on any further increase in interest rates. It’s time for a breather.”

Farming and ranching land prices: The region’s farmland price index dropped to 60.0 from 64.6 in July. This was the 35th straight month that the index has advanced above 50.0. 

Farm equipment sales: The farm equipment-sales index for August slumped to 46.0 from July’s weak 50.0. “This is the fourth time in the past 12 months that the index has fallen below growth neutral. Higher borrowing costs have begun to negatively impact purchases of farm equipment,” notes Goss.

Banking: The August loan volume index dipped to a still strong 75.0 from July’s 75.9. The checking deposit index sank to 30.8 from 32.7 in July, and the index for certificates of deposits and other savings instruments decreased to a strong 69.2 from 71.2 for July.

“Higher short-term interest rates produced by Federal Reserve rate hikes over the past year continue to pose a significant threat to community banks by expanding the costs of customer deposits while the rates on bank loans have risen little over the same time period,” says Goss.

Hiring: The new hiring index for August fell to 51.9 from July’s 59.3. Over the past 12 months, the rural mainstreet economy has expanded jobs by 2.8% compared to a lower 2.0% for urban areas of the same 10 states.

Confidence: Higher interest rates, deposit outflows and a rising regulatory environment continue to constrain the business confidence index to a weak 38.9, down from 44.4 in July. “Over the past 12 months, the regional confidence index has fallen to levels indicating a negative outlook,” observes Goss.

This month, bankers were asked to assess the financial conditions for the farming economy one year from today. Only 14.8% expect a stronger farm economy one year out, while 48.2% anticipate a weaker economy 12 months out.

Regarding the Federal Reserve’s interest rate actions, only 29.6% of bank CEOs expect the Fed’s steps to achieve its inflation goal while limiting the increase in unemployment (i.e., a soft landing).

Jeff Bonnett, CEO of Havana National Bank in Havana, Ill., says, “A ramp up in consumer loan default (credit cards) and bankruptcy may be in the cards for 2024. This will not make for a ‘soft landing’ predicted by some optimists.” The retail-sales index for August dropped to 51.9 from July’s much stronger 59.6. “After an OK quarter two, bankers are getting more optimistic regarding the economic outlook for retail sales for the third quarter,” notes Goss.

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. It reflects the views of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.