Will the Main Street economy improve?
It is hard to fathom the quickness of change in the economy. I did not sense a great change in November but the Creighton Rural Main Street Index (RMI) took an unhealthy dip, falling from 53.2 in October to 46.8 this month. Did anyone get the license number of the truck that just hit us? The Farm Economic Confidence Barometer hit a new high recently. Improvement in the ag economy did not show up on Main Street. That improvement in crop prices did reduce the number of farmers with negative cash flows from 12.4% to 9.2% according to bankers. The farmland price index hit 55, up from 50.5 last month. It was reportedly the first time since 2013 that the farmland index grew for two consecutive months. The borrowing index plunged from 46.8 in October to the lowest reading since they began calculating loan volume in the 10-state heartland region to 25.8. Bankers were twiddling their thumbs. Retail sales were off 3.1% so people are not spending and they are not borrowing. Expect they are waiting on the vaccines. It also shows the limits of monetary policy stimulus where low interest rates become like pushing a wet noodle when potential borrowers turn cautious. Fiscal stimulus is needed which is not happening in Congress.
The North Dakota hiring index fell to 36.8. The oil field bust has cost North Dakota 19,000 non-farm jobs. Wyoming’s Rural Main Street economy lost 5.8% of its workforce. Colorado lost 9.3%. It was not all oil industry related. Illinois lost 7.1%. Minnesota lost 7.9%. Iowa lost 6.4%. Kansas lost 4.6%. South Dakota lost 3.7%. Missouri lost 2.6. Nebrasaka lost 3.9%.
The 10-state job loss was compared to the prior year in November. Overall, the 10-state hiring index fell 3.2% compared to pre-covid-19 levels in November, a job loss totaling 132,000 workers in the 10-state region, other sectors of the economy are hiring. 9 million could lose unemployment compensation at year’s end. Amazon is hiring 1,400 new workers per day.
South Dakota, Missouri, Illinois and Kansas RMIs did show overall growth while the rest deteriorated. The job loss was linked to the Covid-19 pandemic. 54.8% of bankers surveyed said that they expected slower Christmas sales. Despite the Grinch on Christmas, the new home sales index was 73.3 which is about as good as it gets. Consumers are buying new homes and passing on the small stuff. Full recovery and a resumption of growth in 2021 will hinge on the success of getting the public vaccinated for Covid-19 and fiscal stimulus coming from Washington. If the main street economy slid from October into November, what is to keep the same thing from happening November into December as the pandemic has worsened and aid is tardy.
One additional noteworthy number in the monthly Creighton Main Street Economic report was that the banks were flush with money. The checking-deposit index soared to 87.1, a record high, from 66.1 in October. This would be very cheap money. They may only pay .05% on passbook savings which barely registers as a payment and they act like it is painful for them to pay that. Some joke that savers will have to pay banks to keep their money. They are not laughing.
The idea of cheap interest is to force people with money to increase their risk by investing in something in order to improve returns. That has provided incentive for some to buy farmland. It doesn’t take much cash rent from farmland to beat interest paid by a bank. That is one reason that farmland values have remained strong. Another is the volume of land being offered for sale is down. Some thinking about selling farmland cannot find a better return on the money elsewhere which deflates selling interest. Most farmland sales are estate related.
An annual CD may pay .45%. DTN says that interest paid on operating farm loans is 4.1% so one would think bankers could make that margin work. While employment in this region is down, bank deposits are sharply higher. That can only mean that many people are turning cautious in spending. Half of consumers do not own stocks and they provide little spending cash anyway. Also to be noted, loan volume has gone flat. Low interest rates likely have a diminishing impact on helping the economy at some point. For some unspent money is piling up in their bank accounts while conversely for a large number of people, the crisis is loss of income. Federal fiscal stimulus runs out the end of December and how quickly Covid-aid is restored may hinge on a runoff election outcome determining control of the Senate in January. Other programs such as mortgage and student loan payment moratoriums also expire. Fewer shoppers made purchases on Black Friday/Cyber Monday and spent less than a year ago. Merchants are expressing disappointment. In-store shopping virtually collapsed while on-line shopping surged. The U.S. economy is consumer spending driven and all of these threads of data suggests it is slowing markedly. The noodle has been soaked by the pandemic and it is very hard to push a wet one anywhere. Vaccines…vaccinations…consumer confidence…recovery of general public commerce are all critical components to an economic recovery.
Vaccinations of the willing public will be one of the biggest logistic challenges ever accomplished. The Fed has argued that the economic recovery is tied to ending the pandemic. The stock market is doing much better than Main Street is. Will the Main Street economy improve or does Wall Street have the vaccines build into the market?
CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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