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Rural Mainstreet: 4 of 10 Bankers Report Recession Conditions
Minnesota Ag Connection - 09/20/2019

The Creighton University Rural Mainstreet Index (RMI) for September climbed above growth neutral according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

Overall: The overall index rose to 50.1 from 46.5 in August. This marks the third time in the past five months that the overall index has risen above growth neutral.

The trade war with China and the lack of passage of the USMCA (NAFTA's replacement) are driving confidence and growth lower for most areas of the region.

"Despite a $16 billion federal government support package this year and somewhat stronger grain prices, more than four in 10 bankers are reporting that their local economy is in a recession," said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

As reported by Dale L. Leighty, chairman and CEO at First National Bank of Las Animas, Colorado, "Grain prices are (still) a big negative for our customers."

Farming and ranching: The farmland and ranchland-price index for September slumped to a weak 43.1 from August's 46.3. This is the 70th straight month the index has remained below growth neutral 50.0.

The September farm equipment-sales index improved to 35.9 from August's 30.3. This marks the 73rd month that reading has remained below growth neutral 50.0. "This month bank CEOs were asked to project farm equipment sales in their area. On average bankers expected farm equipment sales to decline by another 7.4% in the next 12 months," said Goss.

Banking: Borrowing by farmers for September remained strong. The borrowing index expanded to a very strong 72.2 from August's 66.3. The checking-deposit index declined to 54.2 from August's 52.5, while the index for certificates of deposit and other savings instruments dipped to 51.4 from 52.5 in August.

As a result of continuing weakness in the farm sector, more than half of bankers reported increasing collateral for farm loans, and one in four rejected a higher percent of farm loan applications.

Hiring: The employment gauge jumped to a strong 62.5 from August's solid 55.0. Despite tariffs and flooding over the past several months, Rural Mainstreet businesses continue to hire at a solid pace.

Over the past 12 months, the Rural Mainstreet economy added jobs at a 0.7% pace, or half the pace of urban area growth of 1.4% for the same period. Rural areas of two Rural Mainstreet states, Missouri and Nebraska, lost jobs over the past 12 months.

Confidence: While the confidence index, which reflects bank CEO expectations for the economy six months out, climbed slightly to 42.9 from August's 40.0, it continues to indicate a very negative economic outlook among bankers.

Home and retail sales: The home-sales index decreased to a still solid 57.1 from August's 57.7. The retail sales index for September expanded to 52.8 from August's 45.0. "Bankers in the region reported a rebound in retail sales from August levels," said Goss.

Each month, community bank presidents and CEOs in nonurban agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

This survey represents an early snapshot of the economy of rural agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives 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 in 2005.

The September RMI for Minnesota advanced to 51.2 from August's 47.1. Minnesota's farmland-price index improved to 48.3 from 46.3 in August. The new-hiring index for September declined to 53.2 from August's 54.0. Over the past 12 months rural areas in Minnesota have experienced job growth of 1.5% compared to a significantly weaker 0.3% for urban areas of the state.

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