North Dakota Ag Connection - Rural Mainstreet Index: Over Third of Bankers Report Area Recession

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Rural Mainstreet Index: Over Third of Bankers Report Area Recession
North Dakota Ag Connection - 10/16/2020

Since falling to a record low in April of this year, the Creighton University Rural Mainstreet Index (RMI) has increased for six straight months. According to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy, the index rose to its highest level since January, prior to the onset of COVID-19.

Overall: The overall index for October climbed above growth neutral 50.0 to 53.2 from September's 46.9. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.

"Recent improvements in agriculture commodity prices, federal farm support, and the Federal Reserve's record low interest rates have underpinned the Rural Mainstreet Economy. Still, more than one-third, or 35.5%, of bank CEOs reported their local economies were experiencing recessionary economic conditions," said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

Farming and ranching: For only the third time in the past 82 months, the farmland price index advanced above growth neutral for October. The October reading jumped to 50.6 from September's 45.0.

The October farm equipment-sales index increased to 37.9 from 32.1 in September. This marks the 85th straight month the reading has remained below growth neutral 50.0.

Bank CEOs estimated that farm equipment sales will fall by an additional 3.1% over the next 12 months.

Banking: For the first time since January of this year, banks reduced the volume of loans. The borrowing index slumped to 46.8 from September's 60.9. The checking-deposit index declined to 66.1 from 76.6 in September, while the index for certificates of deposit, and other savings instruments increased to 38.7 from 35.9 in September.

Bankers: as expected, expressed concerns about COVID-19 and its impact on the economy. As stated by Lonnie Clark, president of the State Bank of Chandler, in Chandler, Minnesota, "Our worst problem right now is that so much anti-COVID-19 vaccine information has been spread for political reasons that about half the people I talk to say they won't take the vaccine when it is available. That will hurt our hopes for an economic recovery looking forward."

Hiring: The new hiring index was unchanged from September's 54.8. Even so, data from the U.S. Bureau of Labor Statistics indicate that nonfarm employment levels for the Rural Mainstreet economy are down by 169,000 (non-seasonally adjusted), or 3.9% 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," said Goss.

Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, improved to 51.6 from September's 50.0. "COVID-19 related farm support payments and improving grain prices have boosted confidence offsetting pessimism from the impact of the pandemic," said Goss.

Home and retail sales: The home-sales index slipped to a strong 72.6 from 75.0 in September. The retail-sales index for October increased to a frail 46.8 from September's 43.8. "Higher unemployment and business closures linked to COVID-19 continue to harm the region's retailers," said Goss.

According to Jim Brown CEO Hardin County Savings Bank, Eldora, Iowa, "The Paycheck Protection Program (PPP) loans have helped most of our retail outlets do relatively well the last few months."

This month, bankers were asked to identify the industry in their area most harmed by the pandemic. More than eight of 10, or 80.6%, named restaurants/bars as experiencing the greatest negative impacts from COVID-19. Others areas identified by bankers as economically impacted were: 3% identified farmers, 3.4% said medical care, 6.3% identified retailers, and 6.7% said hourly workers.

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 North Dakota RMI for October dropped to 42.7 from September's 43.3. The state's farmland-price index improved to 45.8 from 41.2 in September. The state's new-hiring index increased to 50.1 from September's 41.9. Compared to the same month last year, North Dakota's Rural Mainstreet economy has lost 12.2% of its nonfarm employment, representing 21,000 jobs.

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