Rural Economy Battling Extreme Headwinds

Trade disputes, flood damage and continued pressure on farm finances are stymieing economic growth in rural America. ( AgWeb )

Trade disputes, flood damage and continued pressure on farm finances are stymieing economic growth in rural America. In May, the Rural Mainstreet Index (RMI) fell below growth neutral for the first time since November. The index hasn’t been below May’s rating of 48.5 since January of 2018.

The monthly survey of bank CEOs in a 10-state Midwest region uses an index range between 0 and 100 with 50 representing growth neutral. 

The rural economy had grown for five months, until last month’s move below growth neutral. That’s a telling sign of the extreme pressures on the rural economy, Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI, told Chip Flory on a recent episode of AgriTalk

March floods, tariffs, trade tensions and anemic farm income negatively influenced the economic outlook of bank CEOs, Goss says, with more than half of bank CEOs reporting negative economic impacts from the flood.

In May, bankers reported that on average they expect farm loan defaults to climb by 10.9%. This is more than double the estimated rate of growth just two years ago. Farm loan defaults is the No. 1 challenge bankers report, Goss says.  

These severe issues occurring at the farmer-lender relationship level will spread into many facets of the rural economy.

“We’re already seeing it spill over into fertilizer dealers and equipment manufacturers,” Goss says. “These are significant impacts that we're talking about. If you look at overall growth in the states we surveyed compared to growth in the rest of the nation, rural economic growth is not nearly as strong. The momentum is moving in the wrong decision.”

The confidence index, which reflects bank CEO expectations for the economy six months out, plummeted to 38.2 in May. That’s down from April’s rating of 50, which indicates a very pessimistic economic outlook among bankers. This is the lowest level in almost two years for the economic confidence index.

A big component of Rural America’s economic viability depends on trade deals, Goss says. “Do we get a trade deal with China? Do we implement tariffs on Mexico? There is a lot of uncertainty out there.”

In fact, earlier this week Federal Reserve Chairman Jerome Powell signaled an openness to cut interest rates if necessary, to cope with the fallout from a deepening set of disputes between the U.S. and its largest trading partners, Bloomberg reports

Goss gives the likelihood of a trade deal being passed a 50-50 chance. 

The June edition of the Rural Mainstreet Index will be published on June 20.

Read More

Rural Bankers: Farm Loan Defaults to Double from 2017 Levels

Ernie Goss: The Man Behind the Rural Mainstreet Index

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