Rural economy rebounding

Rural economy rebounding

- Rural index at highest level since 2007. - Farmland investment remains strongest component of index. - Non-metro labor market weak.

DESPITE ongoing uncertainty in the global economy, the fiscal and financial health of rural America may be at its strongest in more than five years, according to one economic index.

Even so, data from the U.S. Department of Agriculture suggest that workers in rural areas fared much worse than their metropolitan counterparts in 2010 and 2011.

In its monthly economic survey of rural America, Creighton University reported that the Rural Mainstreet Index (RMI) climbed for a fourth straight month in December and reached its highest level since June 2007.

Surveying community bank presidents and chief executive officers in "non-urban, agriculturally and energy-dependent portions of a 10-state area," Creighton economist Ernie Goss said RMI presents a "snapshot" of rural America in a way that provides the "most current real-time analysis of the rural economy."

In December, the index climbed to 60.6, up from 57.5 in November. Ranging from 1 to 100, an index of 50.0 represents a growth-neutral economic status.

Among the December highlights, the survey of 200 rural communities found that nearly 25% of bankers expect shutdowns or temporary closures of ethanol plants in the future, and as a result of higher corn prices and lower ethanol prices, only 3.6% expect an increase in ethanol-related revenues in 2013.

On the other hand, bank CEOs reported significant increases in borrowing to finance farmland and equipment purchases. Goss said overall, strong agricultural commodity prices and lower energy prices boosted business activity in late 2012.

"This is the healthiest reading that we have recorded since well before the national economic recession began in 2007," he explained.

Farmland investment continues to be an area of strong business activity, with Creighton's farmland price index showing very brisk growth at 82.5. Though slightly off from November's 82.9 reading, December marked the 35th consecutive month that the farmland price index was above growth-neutral status.

"The Federal Reserve's cheap money policy is pushing agriculture land prices higher. ... Bankers were asked how much cash rents for farmland changed over the past 12 months. On average, they reported a 15% increase," Goss noted.

Along with farmland and equipment financing, banks reported that home sales remain relatively strong, with the index clocking in at 61.3. Retail sales, meanwhile, indexed at 59.0, soaring from November's 51.5, which might be expected during the holiday shopping season.

Uncertainty remains something of a watchword, however. Creighton's confidence index, reflecting respondents' expectations for the economy six months out, expanded to 55.5 from November's relatively pessimistic 45.6. Goss said improvements in retail sales and home purchases and lower energy prices all played a role in improving lenders' moods at year-end.


Labor market

Perhaps the most telling sign of lingering trouble in rural America is related to the labor market. The RMI showed that hiring remains well off the levels seen prior to the recession. The December index of 53.5 is still down 3% from pre-recession levels.

USDA data reinforce that concern. After two years of economic recovery, the Economic Research Service (ERS) reported in December that improvements in the non-metro labor market remained quite limited.

"While the 2007-09 recession was less severe in non-metro areas, the subsequent economic recovery appears to be slower than in metro areas," ERS noted. "Weak labor demand has put downward pressure on hourly wages, although wage declines have been smaller in non-metro than in metro areas."

ERS data showed that real hourly wages grew through 2009 but actually fell in 2010 and 2011 (Figure), with a median wage for all workers lower by more than $2.50 per hour in non-metro areas than for workers in metro areas. The median hourly wage in 2011 was $14.53 in non-metro counties and $17.04 in metro counties.

From a 2009 peak, wages were off 19 cents per hour in non-metro regions, reflecting a 0.4% decline in 2010 and a 0.9% decline in 2011. The wage data exclude those who are self-employed.

Farmers, bankers and business owners in rural America may be taking advantage of opportunities for economic recovery, but prospects for workers remain dimmer compared to the pre-recession era.

Volume:85 Issue:02

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