markets
August 16, 2019

Trade War Stifles the Rural Economy

 |  By: Sara Schafer

The rural economy is struggling, according to the Rural Mainstreet Index (RMI). The monthly survey of bank CEOs in a 10-state Midwest region fell below growth neutral to its lowest level in almost two years.

For July, the RMI slumped to 46.5 from July’s 50.2, which is the lowest reading since October 2017. The index ranges between 0 and 100, with 50 representing growth neutral. 

“The trade war with China and the lack of passage of the USMCA (NAFTA’s replacement) are driving growth lower for areas of the region with close ties to agriculture,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. “Despite a $16 billion federal government support package coming soon, a drop-in farm income is negatively affecting the Rural Mainstreet Economy.”

Three of four bankers reported the trade war was having a negative impact on their local economy.

“Trade wars have been and will continue to be a drain on our ag economy,” says Jeffrey Gerhart, CEO of the Bank of Newman Grove in Newman Grove, Neb.

Of the bankers surveyed, seven of 10 support continuing, or even raising tariffs on imported Chinese goods.

“Despite the negative impact of tariffs and the trade war, only 28.2% of bankers support cutting tariffs on imported goods from China,” Goss says.

“I quickly surveyed 12 local producers, a majority indicated the (U.S. should) increase tariff pressure—go big or go home,” reports Rod Cornelius, market president for Pinnacle Bank in Grand Island, Neb. “Although the majority again indicated the tariffs are negatively impacting the local economy.”

“If we happen to win the trade war, we will have a very positive impact on our local economy,” says John Nelsen, branch president of FirsTier Bank in Holdrege. “We need to play it out.”

“Our rural area is dependent on ag and is down due to reduced acreage planted, due to wet spring conditions, reduced yield due to current dry conditions, and tariffs,” adds Don Vogel, CEO of Farmers National Bank.

Despite worsening economic conditions on the farm, bankers expect only a modest 4% rate of farm loan defaults over the next year.

The farmland and ranchland-price index for August improved to a still weak 46.3. That’s up from July’s 45.6 and marks the 69th straight month the index has remained below growth neutral 50.  

The August farm equipment-sales index dropped to 30.3 from July’s 37.9. This marks the 72nd straight month the reading has remained below growth neutral 50.

“The dismal economic outlook for farm income continues to decimate agriculture equipment sales in the region,” Goss reports.

The confidence index, which reflects bank CEO expectations for the economy six months out, plummeted to 40 from July’s 51.5. This indicates a negative economic outlook among bankers and is the lowest confidence index recorded since October 2017.

This survey represents an early snapshot of the economy of rural agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states (Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming), 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. Goss and Bill McQuillan, former chairman of the Independent Community Banks of America, created the monthly economic survey in 2005.

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