An index measuring rural bank CEOs’ outlook on business has expanded for the third consecutive month, overcoming drought concerns, but new challenges are on the horizon.
The Rural Mainstreet Index (RMI) is a survey of bank CEOs in a 10-state area. The index ranges between 0 and 100 with 50 being growth neutral.
The index showed negative fallout due to drought conditions in June, July and August. November’s rating increased to 57.5, up .9 from October. The increasing RMI may be short-lived if drought conditions continue and upcoming hurdles, including the fiscal cliff, are not resolved.
A portion of the survey measuring confidence in the economy six months out dropped from 50.7 to 45.6 in November with energy policies and the uncertain farm bill negatively affecting the economic outlook of bankers.
Despite the negative economic outlook the hiring index increased 1.5 points in November.
"Hiring for Rural Mainstreet businesses is improving albeit at a slow pace. The uncertainty surrounding drought conditions and the fiscal cliff' are restraining hiring even as the economy expands," Creighton University economist Ernie Goss said.
Farmland prices continue to sell at record highs providing stability to rural economies. Creighton University reports the farmland-price index took its biggest one month jump since the survey initiated in 2005. The November rating for farmland prices increased 12.2 to 83.9.
"Farmland prices and cash rents are soaring at what I believe are unsustainable paces. For example, last month there was an auction of cash rent contracts in southeast Nebraska. Contracts went for a record $550 per acre per year for non-irrigated land. Right now we are seeing cash rents and farmland priced for perfection. Land prices and cash rents will be heavily dependent on 2013 drought conditions, agriculture commodity prices and interest rates. Any of these three factors could be a significant issue or problem for the Rural Mainstreet economy in the months and years ahead," said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.