Oct. 7, 2024

Sioux Falls-area CEOs are reporting some softening of business conditions but a more optimistic outlook than earlier in the year.

That’s according to the most recent SiouxFalls.Business quarterly CEO survey, conducted in partnership with the Augustana Research Institute and the Sioux Falls Development Foundation.

The survey was conducted during mid-September and completed by more than 50 CEOs and business owners.

Seventy-three percent of CEOs said conditions in their businesses were excellent or good, down slightly from 75 percent three months ago.

“Despite the Federal Reserve rate cut, it appears the local business sentiment has softened since last quarter. However, since this cut came at the end of the third quarter, it most likely isn’t captured in this survey,” said Raymond Leach, director of fintech at Augustana University.

“It takes time for monetary policy changes to have a noticeable effect, and we may not see that reflected until sometime in 2025.”

Sales activity is up slightly with 63 percent reporting at least a slight increase, compared with 54 percent three months ago.

“That’s up from last year,” added Ron Wirtz, regional outreach director for the Minneapolis Fed. “Our recent surveys have suggested either flat or slightly lower sales revenue for many businesses.”

Price increases seem to be moderating, with 36 percent reporting price increases, compared with 75 percent two years ago, he added.

“We’ve seen this same slowing of price pressures in our surveys, but in our surveys, businesses continue to cite inflation as their biggest challenge. They are reporting that inflation is coming down, but they are not feeling much relief,” Wirtz said. “And it’s not hard to see why; they’ve seen above-average hikes for three years running – so even smaller increases on big previous increases are still tough to deal with.”

Leach also sees inflation moderating.

“While the prices have not come down, it is good to see that they are starting to level off,” he said. “We most likely will not ever return to pre-pandemic price levels, but hopefully this means we can at least expect gradual and predictable price changes for the near future.”

In talking with Sioux Falls businesses, “what we’re experiencing is still a bit of uncertainty in the markets I believe due to the charged political environment,” said Bob Mundt, president and CEO of the Sioux Falls Development Foundation.

Hiring is holding its own with a slight uptick from three months ago. Forty-four percent of CEOs reported at least some increase in hiring, compared with 38 percent at the end of the second quarter. Twelve percent reported a decrease, also up from 9 percent three month ago.

“While hiring seems to be increasing just a bit and production is fairly steady, the hires are targeted and skills-based,” Mundt said. “We see more companies investing in new, higher tech capital items to increase production without having to hire additional employees. Retraining to run the equipment becomes the new norm as replacement hires with the ‘right’ skills fill the gaps.”

The fact that Sioux Falls is reporting a hiring uptick is unique regionally, Wirtz said.

Perceptions of the Sioux Falls business climate, though, have softened in the past three months. Eighty-one percent considered it good or excellent, down from 88 percent three months ago and up slightly from 79 percent a year ago.

Perceptions of the U.S. business climate also slipped from the prior quarter, with 35 percent calling it good or excellent compared with 43 percent three months ago.

“It is important to note that we just had an impressive September jobs report and the stock market has been hitting historical highs,” Leach said.

“These feel-good stories on a national level may not fully translate to our local economy because Sioux Falls is in a much tighter job market compared to the nation and this is not Wall Street. Once again, the optimism around the Sioux Falls business climate is refreshing. Despite all of the issues we have faced since 2020, local companies still feel this is a great environment to run a business.”

Looking ahead

The improving rate environment also could be contributing to a more positive outlook to end the year.

Eight-six percent of CEOs surveyed said they expect average or above-average business activity in the fourth quarter, up from 76 percent three months ago.

Seventy-seven percent expect at least average capital spending, up from 69 percent three months ago.

And 77 percent anticipate average or above-average hiring, up from 69 percent three months ago.

The positive outlooks are “all signs of a regional economy that continues to outpace many,” Wirtz said.

The Federal Reserve’s fairly aggressive cut to interest rates — half a percentage point — along with signaling the potential for future rate cuts before the end of the year could be figuring into the survey, Leach said.

“Compared to last quarter, businesses are forecasting a bit more in their future hiring and capital expenditures, which could be due to the anticipated lower cost of capital. Of course, the upcoming election poses a huge unknown to future expectations,” he said. “It will be very interesting to revisit this topic in the new year.”

Sioux Falls Development Foundation resources

Do you have further information to share about conditions at your business? Or are you looking to connect to additional resources to support your growth? The Sioux Falls Development Foundation can assist you in the following areas:

• Workforce development: The Development Foundation offers programs and initiatives to help you attract, retain and develop your workforce. Contact Denise Guzzetta, vice president of talent and workforce development, at 605-274-0475 or deniseg@siouxfalls.com.
•  Business growth and expansion: Whether your business is planning an expansion in the next five years or facing risk factors impacting growth, the Development Foundation can help by discussing existing building space, available land, potential local and state incentives and other resources. Contact Mike Gray, director of business expansion and retention, at 605-274-0471 or mikeg@siouxfalls.com.