July 10, 2023

Business conditions in Sioux Falls are holding their own or even slightly improving midway through the year.

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

The latest survey was conducted during mid-June and completed by more than 70 CEOs and business owners.

Eighty-five percent rated conditions at their business as good or excellent, up slightly from three months ago and one year ago.

That could be because more than half saw sales activity increase in the past three months. About one in four saw a decrease, compared with 38 percent three months ago.

Prices also continue to go up, with more than half reporting a slight or significant increase — but again, less than at the end of the first quarter.

Hiring also is up slightly, with half of CEOs reporting at least a slight increase, versus 43 percent in the previous quarter.

“I think most of the questions look good,” said Bob Mundt, president and CEO of the Sioux Falls Development Foundation.

“From an activity perspective, the ones I talk to are talking about good sales, increased volumes, increased investment in capital. They’re for the most part still looking to hire good people — so cautious but still moving forward.”

Looking ahead, 85 percent are expecting at least average business activity, which is up from 81 percent three months ago, and 11 percent are expecting below-average activity, better than 17 percent earlier in the year.

“Sioux Falls CEOs remain optimistic,” said Reynold Nesiba, a professor of economics at Augustana University. “The fundamentals in South Dakota remain strong.”

He noted that the survey is consistent with Creighton University’s May Mid-American Business Conditions Analysis value of 56.9 for South Dakota, up from 56.7 in April and 47.8 in March. Index numbers over 50 suggest economic expansion for the next three to six months.

In addition to the Sioux Falls Development Foundation, survey results are provided to the Federal Reserve Bank of Minneapolis to assist in its understanding of area business conditions.

“In general, reports seemed quite positive; while they might not have been quite as over the top as a few quarters in 2022, overall activity and sentiment seemed very, very healthy,” said Ron Wirtz, regional outreach director for the Minneapolis Fed.

The results surprised him, he said, given the drop in building activity year over year.

“Overall levels are still above 2021 levels, which were a record at the time. This is particularly notable given that single-family construction so far in 2023 is a fraction of activity seen the previous two years,” Wirtz said. “I’ve been wondering if or when that might dent regional activity and confidence. Not so far. So it shows the region is not only healthy but resilient.”

Looking ahead, Sioux Falls CEOs said they expect to continue spending on capital and hiring. Three in four expect average or above-average capital spending in the next three months.

Seventy-two percent expect average or above-average hiring in the coming quarter, slightly less than at the end of the first quarter.

“I think people are starting to get used to the interest rates, and they’re adjusting their plan of action accordingly to accommodate that,” Mundt said. “I think there’s still some cash out there that they’re spending on capital or investing and able to get good returns. So I think we’re seeing some of that happening as opposed to plowing it back into the business.”

In the past year, inflation has fallen, Nesiba said, pointing out that the annual rate as measured by the consumer price index each month has come down from 8.9 percent in June 2022 to 4.1 percent in May.

“Perhaps this tight monetary policy as reflected in higher rates, combined with sharp reductions in the budget deficit by the Biden administration, have stoked fears of recession, and that is reflected in the overt pessimism regarding the national economy,” he said. “So far, neither the job market nor GDP growth data suggest that a recession is eminent. GDP for the first quarter was revised up, and the labor market nationally remains among the best of the last 50 years for working people.”

Both Sioux Falls and South Dakota as a whole are reporting an unemployment rate of less than 2 percent.

“A so-called ‘soft landing’ at the national level where inflation comes closer to the 2 percent target without causing a recession and rising unemployment seems far more likely now than it did even three months ago,” Nesiba said.

He was most struck by the continued contrast in how CEOs view the Sioux Falls economy versus the national one. Ninety-five percent rate the local business climate as good or excellent, an improvement from the end of the first quarter and one year ago.

Only 40 percent said the same about the national business climate, slightly worse than one year ago.

“Sioux Falls obviously is in their eyes doing better than the rest of the country,” Mundt said. “That’s a good sign, but little things tell me it’s the typical Midwest — we’re cautious when it comes to our sales activity and cautious when it comes to new hiring. All good things. But we’re cautious.”

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 [email protected].
•  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 [email protected].