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Farms Show Signs of Struggle as the U.S. Reports Booming GDP Numbers

8/1/2018

 
​The Commerce Department reported a strong GDP reading of 4.1% in the second quarter of 2018. Contrarily, Great Plains farmers are seeing tougher access to credit as farm incomes continue to slump.
  • Creighton University’s Rural Mainstreet Index (RMI) rose above neutral growth for the sixth straight month. The monthly report surveys bank CEOs in rural areas of a ten-state region dependent on agriculture or energy. Following a 56.1 reading in June, the July RMI slid to 53.8 points. This indicates that the rural main-street economy is still growing, but at a slower pace. The report also notes that with weaker farm income across the Great Plains, banks are raising their collateral requirements on farm loans, leading farm loan rejection rates to nearly double from 23.9% to 42.9% in the last year. On average, bankers expect farmland prices to decline by 2.1% over the next 12 months. This is less than the 3.1% projected decline recorded last June.
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  • Last Friday morning, the U.S. Department of Commerce reported that GDP grew 4.1% in the second quarter of 2018, the fastest annualized pace since the third quarter of 2014 and the third largest gain since the Great Recession. Additionally, the Commerce Department revised the first quarter reading upward 0.2%. In addition to higher consumer and government spending, increases in U.S. exports helped boost the GDP figure, contributing 1.06 percentage points to the 4.1% figure. Farmers hurried in the second quarter to get soybeans to China ahead of retaliatory tariffs. Of the four components that make up GDP – personal consumption, investment, government spending, and net exports – business investment grew the largest at 7.3%. Much of that investment is a result of the new tax code allowing accelerated depreciation and a lower tax rate on qualifying business investments. However, residential fixed investment fell 1.1% in the second quarter, a reflection of low housing inventory and climbing mortgage rates. Further, a drop in business inventories put a slight drag on the final figure. Some economists worry that the support from rushed exports ahead of tariffs, tax cuts and benefits for investment, and an impressive jump in consumer spending is not sustainable through the rest of the year into 2019.

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​Skyline Advisors is a division of Ideation Ventures, Inc. Services involving securities are offered through M&A Securities Group, Inc.4151 N Mulberry Drive Suite 252, Kansas City, MO, 64116  (“MAS") . Services involving real estate brokerage are offered through Berkshire Hathaway HomeServices Ambassador Real Estate ("BHHS"). Skyline, MAS, and BHHS are separate entities. 
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