The Rural Economy Slows in July

The rural economy noted a slight slowdown in July as the Rural Mainstreet Index (RMI) dipped below growth neutral 50.0, despite positive growth for the prior two months. Farmland prices and farm equipments sales continue to advance, although rural bankers continue to be concerned about financial reform and unemployment.

The RMI declined to 49.3 in July from June’s 52.6 and May’s 54.3. The index has significantly improved on an annual basis as the index was at only 34.0 in July, 2009.

“Much like other economic indicators from across the nation, our survey is signaling slowing in economic progress. However, surveys over the past several months show an economy that has improved significantly from last year at this time,” said Ernie Goss, economist at Creighton University.

Farmland

The farmland-price index remained above growth neutral for the sixth consecutive month, although declined sequentially to 52.5 from June’s 54.7. “The farm economy has clearly improved from last year and we are seeing that reflected in farmland prices. However, the strengthening of the U.S. dollar, which has dented farm commodity prices, has slowed the growth in farmland prices,” said Goss.

The farm equipment-sales index remained growth positive, although declined slightly in July to 51.8 from 53.1 in June. “The outlook for farm income for 2010, while still healthy, has softened a bit lately. This has cut into the growth in farm equipment sales,” noted Goss.

Lending

Banking conditions continue to improve as all bank indicators were above growth netural, although bankers continue to be concerned about financial reform.

In July, respondents were asked to assess the financial reform bill just passed by Congress. Only 29% expect reform to have a positive influence on community banks, while 66% anticipate a negative impact.
Dan Coup, CEO of the First National Bank, noted concern, “The sad part about the whole package is that the consumer will again be the biggest loser.”

Hiring

Bankers are also worried unemployment and expect it to be the biggest economic challenge for the rural economy over the next 12 months. The hiring index, after moving above growth neutral for two consecutive months, fell to 45.4 in July from June’s 50.9 and May’s healthier 56.1.

Overall

The decline in July’s survey is consistent with the remainder of the U.S. economy as economists continue to be concerned about unemployment, long-term growth prospects, and sovereign debt concerns. The farmland, equipment, and banking indicators were all growth positive, which we see as a sign that agriculture is continuing to outperform. The recent rebound in grain prices over the last month will also improve the farm economy for 2010.

The Rural Mainstreet Indexes are compiled from a survey of small community bank CEOs from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming.

Disclosure: No Positions