The June Rural Mainstreet Index from Creighton University sank into negative territory for the first time since September 2020. The Index stretches from zero to 100, with growth territory at an index of 50 and above. Dr. Ernie Goss is co-creator of the RMI, and he says June’s reading of 49.8 is below growth neutral, a place the Index hasn’t been for some time.
“Inflation is a really big concern, of course, with the accompanying interest rate hikes. The Federal Reserve, of course, has increased interest rates three times this year and they’ll rise again in July, so that’s pushing some numbers negative. The Expectations and Confidence Index dropped significantly for the month. And what we’re seeing is housing is being negatively affected. The numbers in our survey are not as good as we’ve seen in previous months. Likewise, retail sales are falling, not as good there, of course, with a lot of the growth and most of the growth we’re seeing in retail sales is mostly from inflation.”
An overwhelming majority of ag bankers in the survey are predicting a recession for the rural economy. “As a result, we asked bankers in our survey about the probability of recession, and more than nine out of 10 bankers rank the probability of recession at more than 50 percent, so only seven percent rank the probability of recession at less than 50 percent. So, most of the bankers see a recession ahead, and that’s, of course, a big problem for the small businesses and even some of the big businesses on rural Main Street.”
Higher fuel prices are starting to take a toll on the rural economy. “Rural America, in the midsection of the country, which we survey, are big energy users. Individuals and consumers drive further distances in this part of the country, but farmers are big users of diesel fuel. For example, diesel fuel’s now at the highest price ever, in terms of diesel, and that’s a big part of agriculture. Agricultural input prices are now growing, but luckily for the farmer the prices of the output are growing faster.”
Despite the rising input costs, bankers who responded to the June survey say farm income is still looking strong in 2022.
“We asked the bankers to project income for 2022. Now, this is net farm income, and they expect it to grow between 12 and 13 percent from last year, so even though the costs are rising, revenues are rising faster, at least at this point in time. And, of course, the costs are being passed along in the form of higher costs when the consumer goes to the grocery store.”