A deepening U. S. recession is taking root in rural America, spilling across a sector that has largely lagged the suffering seen on Wall Street, according to an expert with the Federal Reserve Bank of Kansas City.
A drop in commodities prices and slowdown in the farm sector in the third quarter of 2008 expanded into slowed manufacturing and agricultural-related services in the fourth quarter, and conditions have grown worse in the first two months of 2009, said Jason Henderson, the Federal Reserve’s lead agricultural economist in an interview on March 4.
“The recession has now caught rural America,” he said.
Henderson has been surveying banks and will release an updated annual rural economic outlook in the next few weeks.
While rural lenders are largely faring better than their commercial counterparts in metropolitan areas, they are experiencing increased delinquency rates and increased charge-offs as customers are unable to pay back debt, said Henderson.
“That is raising concerns,” he said. “Everybody is taking a watchful eye. Rural banks are still doing much better than their counterparts in the rest of the country … but we are going in the wrong direction.”
For the third quarter of 2008, small community banks reported an average return on assets of 0.3 per cent, down from 0.7 per cent a year earlier, he said.
Increasingly, rural lenders are working to tap funds through the $700 million federal Troubled Asset Relief Program (TARP). And they are tightening up on extending credit, raising collateral requirements and general credit standards, Henderson said.
Henderson’s comments follow a report issued March 3 by PayNet Inc., which collects real-time loan information from more than 200 leading U. S. Capex lenders, that said severe delinquencies – accounts behind 91 days or more – for farmers jumped 82 per cent year over year in January to 1.20 per cent.
Henderson said farmers have been particularly hurt by weak demand for corn-based ethanol, a decline in export demand and a shift by consumers away from dining out and from purchasing more expensive protein products, such as high-end beef.
Rural unemployment is also on the rise, increasing by 12.5 per cent from November to December to 7.6 per cent. Rural counties lost 282,000 jobs in December alone, according to a publication of the Center for Rural Strategies based on figures from the federal Bureau of Labor Statistics.