The regional economy grew at a slower pace this month than in August, according to Creighton University’s monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
The Rural Mainstreet Index fell a half-point to 49.5, the first time it has fallen below the growth-neutral score of 50 in six months. Economic confidence fell to 26.8 from 38.9 in August amid higher interest rates, deposit outflows and a tougher regulatory environment. Half of bankers expect economic conditions to worsen in the next six months, with nearly 50 percent expecting a second banking crisis to occur this year.
James Brown, CEO of Eldora, Iowa-based Hardin County Savings Bank, expects examiners to increase their scrutiny of bank liquidity in the wake of the failures of three large regional banks earlier this year. “They will be very tough on that issue and that will cause some problems internally with banks of all sizes,” he said in the report.
Mixed farm conditions were reported. Loan quality remained strong as less than 4 percent of bankers saw an uptick in farm loan delinquencies over the past six months. The region’s farmland price index increased to 65.4 from 60. “Creighton’s survey continues to point to healthy growth in farmland prices, even as farming conditions weaken,” said Ernie Goss, Jack A. MacAllister chair in regional economics at Creighton University’s Heider College of Business.
Bank CEOs rated a drop in farm income as the top challenge to banking profitability for the next 12 months, followed by rising interest rates. According to the U.S. Grains Council, export uncertainty was a major factor in spot physical corn prices falling to $4.60 per bushel during the week of Sept. 21, from $6.86 a year ago. Regional agriculture exports dropped 7.4 percent to $18.45 billion in the first seven months of this year from $19.95 billion in the same period of 2022.
“Low corn prices will severely impact farm incomes,” said Jim Eckert, CEO of Illinois-based Anchor State Bank.
The index for farm equipment sales fell two points to 44. “Higher borrowing costs are having a negative impact on the purchases of farm equipment,” Goss said.
More than one-third of bankers cited rising interest rates as their top challenge for the coming 12 months. September’s loan volume index dropped to 70.3 from 75 in August and the index for checking deposits grew to a still-weak 35.2 from 30.8 in August. The index for certificates of deposits and other savings instruments fell 10 points to 59.3.
“Higher short-term interest rates produced by Federal Reserve rate hikes over the past year continue to pose a significant threat to community banks by expanding the costs of customer deposits while the rates on bank loans have risen little over the same time period,” Goss said.
Other report findings included:
- The new hiring index for this month fell to 49.2 from 51.9 in August. Over the past 12 months, the rural regional economy has added jobs at a 1.9 percent clip, compared to 1.3 percent in regional urban areas.
- September’s home-sales index dropped 22 points to 37. “Higher mortgage rates are beginning to sink sales,” Goss noted. The retail-sales index dropped to 48.1 from 51.9 in August. “High consumer debt and elevated interest rates are cutting into retail sales,” Goss said.
- The Rural Mainstreet Index fell in Illinois, Iowa, Kansas, Minnesota, Nebraska and Wyoming and increased in Colorado, Missouri, North Dakota and South Dakota.