Regional economy weakens amid interest rate, deposit challenges

The regional economy weakened this month, according to Creighton University's monthly survey of bank CEOs in a 10-state region dependent on agriculture and/or energy. .The Rural Mainstreet Index fell five points to 44.4 from September, below the growth-neutral score of 50. The index for business conditions fell to 24.1 this month from 26.8 amid high interest rates, deposit outflows and increasing regulations. More than half of CEOs reportedly expect economic conditions to worsen in the next six months. .The index for farm equipment sales increased four points to 48, its fourth time of falling below 50 in five months. "Higher borrowing costs are having a negative impact on the purchases of farm equipment," said Ernie Goss, chair in regional economics at Creighton's Heider College of Business. .The region's index for farmland prices fell 10 points to 55.6. More than a quarter of CEOs tightened credit standards for farm borrowers. Approximately 34.5 percent of bank CEOs tightened credit standards for business borrowers. "Creighton's survey continues to point to solid, but slowing, growth in farmland prices as farm commodity prices weaken," Goss said. .Forty-four percent of bankers cited low or falling crop prices as their most pressing farm profitability-related concern in the next 12 months, with 22 percent reporting that rising or high interest rates as their greatest concern. Checking deposits fell to their lowest level since May..Loan volumes were strong this month as the related index increased to 77.7 from 70.3 in September. The checking deposit index fell to 26.9 as depositors sought higher return rates outside of banking. The index for certificates of deposits and other savings instruments increased to 59.6 from 59.3. ."Higher short-term interest rates produced by Federal Reserve rate hikes over the past year continue to pose a significant threat to community banks by expanding the costs of customer deposits while the rates on bank loans have not risen as significantly over the same time period," Goss said. .Other report findings included:.The new hiring index for October remained at 49.2 as rural areas continue to experience a stronger job market than urban areas. The home-sales index increased to 40.4 from 37 in September. "Higher mortgage rates are beginning to sink home sales in rural areas," Goss said. The retail-sales index fell to 46.3 from 48.1 in September. "High consumer debt and elevated interest rates are cutting into retail sales," he added.