A monthly survey of rural bankers is showing slow and steady economic growth, but steep costs for farming supplies and high interest rates might cut short any momentum.

The first Rural Mainstreet Index of the year rose to 53.8 from 50.1 in December, staying in positive territory for a second straight month after hovering below growth-neutral for half of 2022.

In the monthly survey of rural bankers in 10 states, the index ranges from 0 to 100 with a reading of 50.0 representing growth-neutral. 

Despite bankers' positive assessment of the economy, almost 85% of them ranked rising prices for supplies and equipment “as the top economic challenge or threat to farmers in their area," followed by higher interest rates, said Ernie Goss, Creighton University business school professor and the study's author.

Bankers also expressed concern about lower demand for loans and “rising regulatory costs" this year. This month's loan volume index, while still above growth-neutral, fell to 58.0 from December's 72.1, indicating that farmers are borrowing to cope with costlier supplies and drought conditions.

Bankers' unease about higher interest rates kept their longer-term economic assessment in negative territory. The confidence index, which reflects their expectations for the economy six months out, was below growth-neutral at 40.4 in January, though that was an improvement from 29.6 in December.

Higher interest rates dampened home sales as well. The home-sales index was 38.5 in January, an improvement from 33.3 in December but still the eighth straight month below growth-neutral.

And while the retail-sales index for January climbed to 51.9 from December's 45.5, bankers “were pessimistic regarding the economic outlook with downward pressure on retail sales for the first quarter of 2023."