The regional economy in the central states grew at a slower pace this month than in July, 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 to the growth-neutral score of 50 from 55.6 in July, ending a four-month streak of above growth-neutral readings. An even one-third share of bank CEOs expect either a soft economic landing or period of negative growth. The drop in economic growth will likely push the Federal Reserve to pause interest rates during its next meetings in September, said Ernie Goss, Jack A. MacAllister chair in regional economics at Creighton University’s Heider College of Business.
The region’s index for farmland prices fell to 60 from 64.6 in July, while the index for farm equipment sales fell four points to 46. Farmland cash rents are expected to grow 1.3 percent over the next year. “Higher borrowing costs have begun to negatively impact purchases of farm equipment,” Goss said.
Ag exports fell 14.6 percent to $6.8 billion from $8 billion in the first half of 2022. Nearly half say the farm economy will be weaker 12 months from now, compared to less than 15 percent who expect stronger conditions. Banks continued reporting low deposits. The checking deposit index fell to 30.8 from 32.7 the previous month, and the index for certificates of deposits and other savings instruments fell two points to 69.2. The index for loan volumes fell to 75 from 75.9 in July.
Higher interest rates, an outflow of deposits and a more stringent regulatory environment limited the business confidence index to 38.9, a drop from 44.4 in July. “Over the past 12 months, the regional confidence index has fallen to levels indicating a negative outlook,” Goss noted.
Other report findings included:
- The new hiring index fell to 51.9 this month from 59.3 in July. Over the past 12 months, employment increased 2.8 percent in the rural region, higher than the 2 percent in urban areas. “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.
- August’s home-sales index increased to 59.3 from 55.8 in July. “Despite higher mortgage rates, an increase in the housing inventory boosted sales across the region,” Goss said.
- The retail-sales index fell to 51.9 from 59.6 in July. “After an OK quarter two, bankers are getting more optimistic regarding the economic outlook for retail sales for the third quarter,” Goss noted.