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August 2023 Survey Results at a Glance:

• After four straight months of above growth neutral readings, the Rural Mainstreet Index (RMI) slumped to growth neutral, 50.0, in August. 
• Farmland cash rents are expected to expand by 1.3% over the next year.
• Less than one-third of bank CEOs expect a “soft landing” for the economy. Approximately one-third anticipate a “hard landing,” or negative growth from Federal Reserve rate hikes.
• Bankers reported continuing record low deposits.
• Only 14.8% expect a stronger farm economy one year out. Almost one-half, or 48.2%, forecast a weaker farm economy 12 months out.
• The region’s agriculture exports contracted from $8 billion in the first half of 2022 to $6.8 billion for the same period in 2023 for a 14.6% slump.

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 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 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,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.

A large share of bankers support a cessation of rate increases. Said 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,” said 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,” said 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 continued 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,” said Goss.

According to data from the International Trade Association, the region’s agriculture exports contracted from $8 billion in the first half of 2022 to $6.8 billion for the same period in 2023 for a 14.6% slump.

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., said, “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.”

Home and retail sales: Both home sales and retail sales moved above growth neutral for August. The August home-sales index rose to 59.3 from July’s healthy 55.8. “Despite higher mortgage rates, an increase in the housing inventory boosted sales across the region,” said Goss.

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,” said 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. The index provides the most current real-time analysis of the rural economy. Goss and Bill McQuillan, former Chairman of the Independent Community Banks of America, created the monthly economic survey and launched it in January 2006.

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