Midwestern economy improving amid price, regulatory pressures

Bank CEOs say the rural Midwest economy is improving even as they continue to feel the impact of higher farm input prices and regulations, according to Creighton University’s January Rural Mainstreet Index report. 

The RMI increased from 50.1 in December to 53.8 this month, the second straight month that the reading has been above the growth-neutral score of 50 following six straight months of negative readings. The index tracks the sentiments of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy. 

The RMI tracks the sentiments of bank CEOs in rural areas of a 10-state region, including Colorado, Illinois, Kansas, Missouri, North Dakota, Iowa, Minnesota, Nebraska and South Dakota. “The Rural Mainstreet economy continues to experience improving, but slow, economic growth,” said Ernie Goss, Jack A. MacAllister chair in regional economics at Creighton University’s Heider College of Business.

The index tracking economic confidence increased 11 points to a still-low 40. “Over the past 10 months, the regional confidence index has fallen to levels indicating a very negative outlook,” Goss said. 

Nearly 85 percent of bank CEOs cited rising input prices as the greatest economic challenge or threat to farmers in their area, followed by higher interest rates. CEOs cited low loan demand as the No. 1 threat to rural banks, closely followed by increasing regulatory costs. 

The region’s index for farmland prices increased one point to 66, its 28th straight month of being above 50. Despite higher interest rates, strong farm income pushed the index for farm equipment sales higher by one point to 61. “Higher farm input costs, greater farm equipment sales and drought conditions in portions of the region supported strong borrowing from farmers,” Goss added. “At the same time, higher interest rates encouraged greater CD purchases by farmers.”

Other findings included: 

  • The index for loan volumes fell 14 points to 58, while the reading for checking-deposits increased 22 points to 70. The index for certificates of deposit and other savings instruments increased 21 points to 72.  
  • The index for new hiring increased four points to 53, even as labor shortages continued across the Midwest. Non-farm employment at Rural Mainstreet businesses grew by 3.3 percent over the past 12 months, compared to 3 percent growth for urban areas of those same 10 states.
  • The index for home sales increased five points to 38 this month from 33 in December, the eighth straight month that the index has been below growth-neutral. Goss attributed the continued low readings to 30-year mortgage rates doubling over the past year and low inventory levels slowing home sales.   
  • The index for retail sales increased six points in January to 51. “Even so, bankers were pessimistic regarding the economic outlook with downward pressure on retail sales for the first quarter of 2023,” Goss said.