CEOs report some softer business conditions, plans for capital improvements

July 9, 2018

Sioux Falls CEOs expect to make more capital improvements and do less hiring in their businesses than they said three months ago, according to the quarterly SiouxFalls.Business CEO Survey in partnership with the Augustana Research Institute.

More than 50 CEOs responded to the survey, which looks ahead to their plans for the third quarter.

Forty percent said economic conditions at their business were excellent, which is identical to the previous quarter. After that, though, 48 percent said conditions were good, down from 60 percent. For the first time since the survey began last year, 10 percent said business conditions were fair, and 2 percent said they were poor.

One-third expect above-average business activity at their companies in the next three months, which is down from 51 percent in the prior quarter, while 65 percent expect average activity. Two percent expect below-average activity.

“Respondents continue to thrive and expect to do so in the future. Hiring expectations have dropped significantly, while expected capital expenditures have spiked,” said Robert Wright, the Nef Chair of Political Economy at Augustana University.

“This may indicate a continued shift toward capital substitution.”

Twenty-seven percent of Sioux Falls CEOs said they expect above-average capital spending in the next three months, compared with 15 percent who projected it last quarter. There’s also more uncertainty around spending, with 10 percent saying they’re unsure of their plans.

Wright said he expects those capital projects could include making businesses more automated and integrating artificial intelligence – ultimately decreasing employment needs “due to rising labor costs, falling capital costs and continued historically low real interest rates.”

While 22 percent of CEOs still expect above-average hiring in the next three months, that’s down from 34 percent who expected it last quarter.

“With companies buying machines instead of hiring workers, we may see decreases in wages and/or employment, especially at the lower wages where most such substitution still occurs,” Wright said.

“With less money from employment, people may seek public services instead, especially if their income is shocked by higher electricity bills due to hot weather.”

CEOs continue to be optimistic about the local economy, with 56 percent rating the Sioux Falls business climate as excellent – a 10 percentage point increase from last quarter.

CEOs report some softer business conditions, plans for capital improvements

Sioux Falls CEOs expect to make more capital improvements and do less hiring in their businesses than they said three months ago

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