The rural economy slowed in May due to concerns about higher energy, but remains near its four year high. Survey respondents remain confident about the economic outlook for the rural economy, but the wet spring and difficult planting season leave bankers concerned.

The overall Rural Mainstreet Index (RMI) declined to 54.9 from 59.4 in April, according to the survey of bank CEOs in a 10-state region. Despite the small decline, May’s reading marks the seventh straight month the index is above growth neutral 50.0 and well above the reading of 44.2 last April.



“Even though the Rural Mainstreet economy is expanding, higher energy prices are beginning to slow growth,” said Creighton University economist Ernie Goss, co-author of the report.

Agriculture

Farmland prices remain above growth neutral for the 16th straight month, but the farmland index decreased to 75.0 from April’s 77.6 and well above last April’s 59.6. Bankers continue to expect strong farming conditions in 2011, but are concerned about rising crop expenses.



The farm equipment sales index declined slightly to 65.9 from 74.2 in April, but still well above growth neutral. “Firms linked to agriculture or energy are experiencing very healthy growth and growth prospect. On the other hand, Rural Mainstreet companies that are not tied to the farm economy continue to experience very little growth,” said Goss.

Banking

Loan volumes declined in May to 55.5 from a reading of 58.1 in April due to seasonal loan demand. Checking deposits declined to 58.2 from 65.5 in April and certificate of deposits decreased to 44.6 in May from 48.5. Bankers also noted they are concerned about the U.S. Treasury delaying action on small business loans..

The rural economy continues to add jobs for the sixth straight month, but the jobs index declined to 54.2 in May from April’s 56.9. “The Rural Mainstreet economy is adding jobs at an annual pace of one percent. We need to see this pace increase to 1.5 percent to return to what would be considered as a healthy job market,” said Goss.

Rural bankers continue to expect sustainable growth over the next six months in the rural economy as the economic confidence index increased to 63.7 in May from April’s reading of 61.0. “Even though confidence is high, bankers remain concerned about the level and growth in energy prices. Given the importance of energy prices to agriculture, any significant increase in oil prices would certainly reduce business confidence,” noted Goss.

Survey

The Rural Mainstreet Survey is a snapshot of the rural economy covering 10 states, focusing on roughly 200 rural communities with an average population of 1,300. The survey respondents include community bank presidents and CEOs located in Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming.

- Colvin