Iowa’s rural economy expanded in June as hiring expectations improved, but despite increased optimism concerns over drought grew, according to a monthly survey of rural bank managers.

Creighton University’s Rural Mainstreet Index showed that the index for Iowa increased slightly to 51.7 in June from 50.8 in May. The index ranges from zero to 100 with a score of 50 representing neutral growth for the next six months.

Iowa’s new hiring index jumped almost 4 points to 52.4, from 48.8 in May.

For the 10 states covered by the survey, the regional index score rose to 56.9, its highest reading since May 2022. It was up from 55.8 in May, and this was the third straight month it remained in positive territory.

“After negative growth during the first quarter of this year, the Rural Mainstreet economy experienced positive, but slow, economic growth for all of the second quarter,” Ernie Goss, the Jack A. MacAllister chair in regional economics at Creighton, said in the report, released Thursday.

Goss said only 3.4% of bankers reported a downturn in economic conditions in June.

The survey, compiled before Wednesday’s decision by the Federal Reserve to pause interest rate hikes, showed that rising interest rates were a chief concern for rural bank CEOs.

“Higher short-term interest rates produced by Federal Reserve rate hikes over the past year have posed a significant threat to community banks by expanding the costs of customer deposits while the rates on bank loans have risen little over the same time period,” Goss said.

Higher rates were also beginning to negatively affect the purchase of farm equipment, the report showed. That was evident as the farm-equipment sales index fell to 48.3, down from 50.2 in May.

While higher interest rates were affecting equipment purchases, they were not having a “significant impact on farm operations yet as many farmers have paid down operating lines with grain sales,” said Mike Van Erdewyk, CEO of Breda Savings Bank in Breda, Iowa.

Van Erdewyk said while recession is still a concern, another concern has moved up the list as dry conditions spread across the region.

“The fear of a drought seems to be bigger than fear of a recession,” he said in the report.

The latest U.S. Drought Monitor map released Thursday shows abnormally dry conditions across northern and central Iowa, with moderate and severe drought conditions in eastern and western Iowa, with a pocket of extreme drought conditions in far western Iowa.

The rural economy is also being bolstered by strong export numbers for 2022.

According to the report, the region exported $13.3 billion in agricultural products in 2022, a 26% increase from the previous year. Iowa exported $2.1 billion, up 4.3% from the previous year.

In other key areas of the report:

• The home sales index declined to 48.2, down more than 6 points from May as higher rates and tight market constrain sales across the region.
• The retail sales index expanded slightly to 56.9 as bankers become more optimistic for third-quarter growth.
• The confidence index increased nearly 5 points to a still weak 43.1, influenced by high interest rates, rising regulatory environment and increased bank withdrawals.