The rural economy broke free from the reins of recession in 2004 with an especially strong performance in the farm sector. Net farm income easily surpassed the record high of 2003. And the weakness that plagued the nonfarm rural economy in recent years appears to have been replaced with stronger job growth and higher incomes. Strong performances in the farm and nonfarm sectors have led to soaring land values. Rising incomes are often capitalized into asset values, and the past year was no exception. Rising rural incomes quickly led to strong land value gains. Since real estate is rural America’s most important asset, strong land values are often viewed as an indicator of a healthy rural economy. Looking ahead to 2005, healthy rural incomes in agriculture and on Main Street will continue to underpin farmland value gains. While farm incomes are expected to remain strong, the industry must keep a close watch on trade developments and an emerging disease threat to the soybean crop. The nonfarm economy is expected to strengthen with the rest of the nation. Growth in jobs and wages in high-skilled industries is a welcome sign for rural America in its quest to build new economic engines in high-skilled activities. Henderson and Novack review the performance of the rural economy in 2004 and look ahead to the prospects for 2005. First, they focus on the booming farm economy in the past year. Second, they discuss the recovery in the nonfarm rural economy. Third, they examine the influence of stronger farm and nonfarm incomes on farmland values. Finally, they look at the issues facing the rural economy in the coming year.
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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.