Rural Bankers Turn More Cautious on Economy

For the first time since March, the overall Rural Mainstreet Index (RMI) sank below growth neutral for September, 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 September fell to 49.5 from August’s 50.0. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral. 

“This is the weakest recorded reading since March of this year. Bankers indicate the biggest challenge to community bank profitability over the next 12 months will be a downturn in farm income,” says Creighton University’s Dr. Ernie Goss, who conducts the survey.

Farming and ranching land prices: The region’s farmland price index climbed to 65.4 from 60.0 in August. This was the 36th straight month that the index has advanced above 50.0.  “Creighton’s survey continues to point to healthy growth in farmland prices, even as farming conditions weaken,” notes Goss.

Farm equipment sales: The farm equipment-sales index for September slumped to 44.0 from August’s 46.0. “This is the fifth time in the past 12 months that the index has fallen below growth neutral. Higher borrowing costs are having a negative impact on the purchases of farm equipment,” states Goss.

“Several bankers in this month’s survey voiced concerns over economic losses of pork producers in the region,” said Goss.

Banking: The September loan volume index dipped to a still strong 70.3 from August’s 75.0. The checking deposit index increased to a very weak 35.2 from 30.8 in August, and the index for certificates of deposits and other savings instruments decreased to 59.3 from 69.2 for August.

“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,” Goss comments.

Bankers were asked the greatest challenge to banking operations over the next 12 months. More than one-third of bankers, or 35.7%, named rising interest rates as the biggest challenge over the 12-month period.

Despite higher interest rates and lower farm income, only 3.5% of bank CEOs report an increase in farm loan delinquencies. 

When asked if the 2023 banking crisis that spiked in March of this year was over, almost half, or 46.4% of bankers, expect another banking crisis this year. 

James Brown, CEO of Hardin County Savings in Eldora, Iowa reflected the sentiment of many bankers in the region when he said, “When I say that the banking crisis isn't over, I am referring to the increased scrutiny from examiners regarding liquidity. They will be very tough on that issue and that will cause some problems internally with banks of all sizes.”

Confidence: Higher interest rates, deposit outflows and a rising regulatory environment continue to constrain the business confidence index to a much weaker 26.8 from 38.9 in August. “This month’s reading is the most negative outlook recorded since July 2022. Over the past 12 months, the regional confidence index has fallen to levels indicating a very negative outlook,” says Goss.  “Approximately half of bankers expect economic conditions to worsen in the next six months,” states  Goss.

Home and retail sales: Both home sales and retail sales slumped significantly for September. The September home-sales index fell to 37.0, the lowest reading since March of this year, and down from August’s healthy 59.3. “Higher mortgage rates are beginning to sink home sales,” notes Goss.

The retail-sales index for September dropped to 48.1, which is down from August’s tepid 51.9. “High consumer debt and elevated interest rates are cutting into retail sales,” observes 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.