Rural Mainstreet Index Creeps Up for August
The rural economy is slowly rebounding from the impact of COVID-19. The Rural Mainstreet Index (RMI), a monthly survey of bank CEOs in a 10-state Midwest region, sits at 44.7 for August 2020.
August’s index represents the sixth straight month with a reading in a recessionary economic zone and a slight increase from July’s reading of 44.1. The index ranges between 0 and 100, with 50 representing growth neutral. In April, the RMI hit its lowest-ever reading of 12.1.
“Farm commodity prices are down by 10.4% over the last 12 months,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. “As a result, and despite the initiation of $32 billion in USDA farm support payments in 2020, only 8% of bankers reported their area economy had improved compared to July, while 18.4% said economic conditions had worsened.”
Key takeaways from the August RMI:
- Overall index advanced to a weak level and remained below pre-COVID-19 levels.
- Around 46% of bank CEOs with ethanol plants in their area reported temporary shutdowns. The remaining 54% reported ethanol production expanding at a slow pace.
- More than three of four bankers reported negative COVID-19 economic impacts on their local economy.
- One of six bank CEOs expects farm loan defaults to climb by an average of 15% over the next 12 months.
- On average, bankers estimated farm loan defaults would rise by 5.3% over the next 12 months. This is up slightly from 5% recorded last month, and 4.8% registered one year ago.
For only the second time in the past 81 months, the farmland price index moved above growth neutral with an August reading of 50.1, up from July’s 45.6.
The August farm equipment-sales index fell to 32.8 from 34.4 in July. This marks the 83rd straight month the reading has remained below growth neutral 50.0.
Borrowing by farmers expanded for August, but at a slower rate than in July. The borrowing index fell to 53.9 from July’s 57.4.
Data from the U.S. Bureau of Labor Statistics indicate employment levels for the Rural Mainstreet economy are down by 225,000, or 5.1%, compared to pre-COVID-19 levels.
“It will take many months of above growth neutral readings to get back to pre-COVID-19 employment levels for the region,” Goss says.
The confidence index, which reflects bank CEO expectations for the economy six months out, improved to 44.6 from July’s 43.9.
“COVID-19 related farm support payments have boosted confidence, partially offsetting pessimism from weak agriculture commodity prices, frail retail sales and August storms,” Goss says.
Here are a few state reports:
Iowa: “There was tremendous storm damage in our southern trade territory including the towns of New Providence and Union. We subtracted $100 per acre from our farm customers cash flows with the combined effects of the drought and storm,” reports James Brown, CEO of Hardin County Savings Bank in Eldora.
Missouri: “We most certainly have had people and businesses that were significantly damaged, like cattle, restaurants, etc.,” reports Don Reynolds, chairman of Regional Missouri Bank in Marceline.
South Dakota: “As for South Dakota, we were a state that did not shut down. Western part of the state has seen a significant boost to the economy due to tourism from shut down states,” reports Todd Douglas, CEO of the First National Bank in Pierre. “We have a large amount of Paycheck Protection Program loans that have inflated our loan balances and checking balances. We should be back to normal by October if loans get forgiven.”
This RMI, which started in 2005, represents an early snapshot of the economy of rural agricultural and energy-dependent portions of the nation. It focuses on 200 rural communities with an average population of 1,300.
Read More
Nine of 10 Rural Bank CEOs Expect Recession
Coronavirus Causes Record Drop in Rural Mainstreet Index
Meet the man behind the Rural Mainstreet Index: Ernie Goss.
