Rural Economy Grows At Steady Pace

The Rural Mainstreet Index (RMI) advanced further above growth neutral this month as bankers believe the rural economy of the U.S., dependent on agriculture and energy, continues to expand at a healthy rate. The farmland price index which has been above growth neutral for almost four years has dropped to slightly below growth neutral.

The Rural Mainstreet Index, ranging between 0 and 100 with 50.0 representing growth neutral, increased to 56.1 from a 54.3 in November. Although the rural economy is growing at a steady pace, there are risks as we enter 2014 as Ernie Goss, economist at Creighton University, points out, "This month we asked bankers to name the biggest threat to the rural economy for 2014. Approximately 80.6 percent named lower agriculture prices to be the greatest economic threat in the next year while 10.6 percent said the Affordable Care Act was the biggest economic challenge for 2014.”

The farmland price index contracted to 47.0, the lowest level since December 2009. Goss noted, “This is the first time in four years that the farmland-price index has moved below growth neutral. As agriculture commodity prices have moved lower, so have farmland prices.”

For the sixth month in a row, farm equipment sales were below growth neutral at 44.3, down three points from last month. "Over the past year, grain prices have declined by roughly 35 percent. This has significantly reduced farmers’ willingness to purchase agriculture equipment,” said Goss.

The loan-volume index increased to 66.7, from November's 56.9. The checking-deposit index fell to 66.0, from 72.0 last month.

Bankers were asked this month what the largest threat to community banks will be as we move into 2014. Over half of bankers believe increased regulatory costs were the number one risk to community banks and a fourth of bankers believe low loan demand to be the largest threat.

Survey
This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The 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.