For the first time since November, the overall Rural Mainstreet Index (RMI) fell below growth neutral. Trade tensions with China and Iran combined with the failure to finish up the USMCA are having a dragging effect on the Midwest economy.

“I think the real problem right now is what’s ahead,” said Creighton University economist Ernie Goss. “The uncertainty with hopefully new discussions going on with China. It’s really hitting the grain farmer particularly hard in this part of the country. Livestock is doing somewhat better, because livestock depends a great deal more heavily on the domestic economy.”

Even though the country as a whole is still going okay, the Midwest is lagging behind. Growth is about half what it is in the U.S. in this region.

“Right now, they’re expecting farm loan defaults of over 10 percent,” said Goss. “That’s double what we recorded two years ago. All of this is spilling over into the farm sector, but, what happens on the farm doesn’t stay on the farm. It spills over to Topeka, spills over to Wichita and other communities across the region.”

Goss is really concerned about the trade war causing the economy to go backward if it isn’t resolved soon.

“We’re going to see some action, maybe, from the Federal Reserve, to reduce interest rates,” said Goss. “This is spilling over into the broader Rural Mainstreet economy. Also, we’re seeing it at the national level. Not nearly as much at the national level, though, I have to say. It’s a real agriculture and energy problem right now. There is a potential for a recession, certainly in this part of the country at the end of this year, maybe in the first part of 2020.”

The economic confidence index dropped to its lowest level in almost two years this month.