Rural economy growing, regional bank survey says

Bill Knight column for Thurs., Fri., or Sat., Sept. 12, 13 or 14

The nation’s jobless rate fell to 7.3 percent in August, according to last week’s findings by the federal Bureau of Labor Statistics showing unemployment at its lowest level since December 2008. The Federal Reserve said that the economy showed a modest to moderate pace of growth.

What about rural America?

The most recent survey of rural bank CEOs in 10 Midwest states shows that growth for the rural economy remains positive, but it slowed in August.

The Rural Mainstreet Index (RMI) – which ranges between 0 and 100, with 50.0 representing growth neutral – slipped to 55.8 from July’s 57.3, but it was ahead of last August’s 47.1.

In Illinois, the RMI declined to a growth-neutral 50.0 from 57.6 in July. The RMI has now remained at or above growth neutral for 11 straight months. Illinois’ farmland prices expanded to 51.2 from July’s 49.1. The state’s new-hiring index dipped to 52.4 from July’s 54.3.

RMI responses from bankers said that farmland price growth slowed for the eighth time in past nine months; farm equipment sales declined for the first time since 2009 (with an August index below growth neutral) and most bankers named Farm Credit as their major competitor for farm loans.

“Last year … the drought was weighing on the Rural Mainstreet Economy,” said Creighton University economist Ernie Goss, who coordinates the survey. “This year, weaker agriculture commodity prices are having a dampening impact on the farm economy and businesses tied to agriculture. Even so, the economy continues to expand at a reasonable pace.”

Each month, community bank executives in nonurban parts of Illinois, Iowa and 8 other states are surveyed about economic conditions in their communities and their economic outlooks for six months ahead. Focusing on about 200 communities with an average population of 1,300, it offers timely analysis of the rural economy.

Its August farmland-price index for all 10 states declined for the eighth time in the past nine months, falling to 55.8 from 58.2.

“Our farmland-price index has been above growth neutral since February 2010,” Goss said. “However, lower farm commodity prices are slowing growth in farmland prices. I expect farmland price growth to continue to weaken as agriculture commodity prices soften.”

However, although the pace of farmland sales is slowing overall, the value – the prices paid – is up slightly, and a mid-year survey by the Illinois Society of Professional Farm Managers (SPFM) agreed.

“These prices are not at the level of increases we’ve seen in recent years, but they are still upward,” commented Dale Aupperle, with Heartland AgGroup in Forsyth, Ill.

Meanwhile, home sales last month slipped slightly to a still-strong 72.5 index from July’s 76.6.

Elsewhere, August retail-sales index declined, too, from July’s 53.1 to 52.6 – still above growth-neutral.

“Similar to national trends, rural home sales are continuing to rebound while retail sales continue to grow, but at a tepid pace,” Goss said.

Farm equipment sales also softened for August, when the index dropped below growth neutral for the first time since 2009. The index slumped to 49.2 from 50.0 in July.

“Agriculture equipment dealers may find themselves with higher unsold inventory,” Goss said. “The direction we are seeing in agriculture commodity prices, while helpful to livestock producers, is pushing farmers to pull back on their equipment purchases. This trend will begin slowing overall rural growth.”

John Hawkins, Remarketing Manager at Kleine Equipment in Brimfield, Ill., agreed.

“Our industry is holding record numbers of used machinery,” Hawkins said. “This is much like what occurred in the early 1980s. The difference is the cost of the equipment is much, much higher.”

In community banking, the loan-volume index remained above growth neutral for the month, at 70.5, though that’s down from July’s 75.7. The checking-deposit index slipped to 51.7 from July’s 53.7 while the index for Certificates of Deposit and other savings instruments increased to a still-weak 43.5 from July’s 42.0.

Also this month, bankers reported on their major competitors for agriculture loans. Almost 9 of 10 (88.3 percent) indicated that Farm Credit was their biggest competitor. Other responses were other community banks (about 8 percent); large, non-community banks (1.7 percent); and individual farmer/owners (also 1.7 percent).

RMI indices for employment and confidence were mixed, with the hiring index for August down to a still-strong 59.2 from 60.7 in July.

“Growth in hiring is definitely slowing for the region even though it remains positive,” Goss said. “Businesses directly linked to agriculture and energy are either shedding jobs or adding them at a slow pace.”

RMI’s confidence index, reflecting community bankers’ expectations for the economy in the near future, fell to 53.4 from 56.6 in July, which Goss attributes to weaker commodity prices and a drop in farm equipment sales.

[PICTURED: Photo from Electric Co-op Today, the National Rural Electric Cooperative Association magazine.]