July 8, 2024

Business conditions in Sioux Falls seem to be softening some, though price stabilization could indicate inflation is coming down.

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-June and completed by 70 CEOs and business owners.

Seventy-five percent said overall conditions at their business were good or excellent, down from 89 percent three months ago and 85 percent a year ago.

More than one in four pointed to a drop in sales in the past three months, with 27 percent reporting at least a slight decrease while more than half — 54 percent — reported at least a slight increase.

“I believe companies are adjusting to higher interest rates, political uncertainty and new supply chain models and adapting their strategies to accommodate the current environment with changes in capital expenditures and training for new technology,” said Bob Mundt, president and CEO of the Sioux Falls Development Foundation.

While there are some changes, most likely would fall within a margin of error, said Ron Wirtz, regional outreach director for the Minneapolis Fed.

“In general, what I’m seeing over the course of the last six to seven surveys is some slow decline in positivity – but from hyper-positivity in 2022 when everything seemed to be coming up aces for Sioux Falls businesses,” he said. “Now, it seems, Sioux Falls businesses are merely, and consistently, above average.”

In some ways though, “it fits a pattern I am seeing in the data and among contacts across a six-state region – namely that things have slowed a bit, but they are also starting to feel a bit more consistent,” he continued. “Not for everyone or every sector, but overall.”

Generally, Minneapolis Fed surveys have found larger firms are seeing “much more positive results” than medium and especially small businesses, he said.

Raymond Leach, director of fintech at Augustana University, points to a couple of potential reasons behind the decline in sentiment: persistent inflation coupled with tight monetary policy and political uncertainty around the upcoming election.

“The stock market is doing well, and unemployment is down; however, we are still facing higher prices while wages have not been able to keep up,” he said. “Lowering rates might be a way to stimulate the economy, but the Fed will be reluctant to do so until they see a significant improvement in inflation.”

Prices for products and services in Sioux Falls largely held flat in the second quarter, with 58 percent reporting either no change in pricing or a drop.

“I think the real-good news lies in continued decline in inflationary price pressures,” said Wirtz, noting that in the third quarter of 2022 eight in 10 survey respondents reported at least some increase in pricing, with half of that group saying it was a significant increase.

Earlier this year, more than half reported price increases, and now it’s 41 percent, “including just 12 percent that said price increases were significant,” he said. “That’s certainly good for consumers and B2B sales, and helps promote a more stable business environment.”

Hiring might be slowing some, with 2 percent reporting a significant increase and 9 percent reporting a slight decrease.

“There is also a lot of uncertainty about the upcoming elections, which will have major implications for American businesses. Both presidential candidates have very different economic policy solutions that would lead to different outcomes for businesses,” Leach said.

“When faced with such uncertainty, the natural inclination is to wait it out and see what happens. I think many businesses are going to hold off making major decisions until they know the outcome of this election.”
Looking ahead, more than three in four CEOs say they expect average or above-average business activity in the next three months.

The same goes for capital expenditures, with most expecting at least average spending, though 22 percent expect below-average capital spending, and almost one in 10 aren’t sure. That still leaves almost 70 percent planning average or above-average spending.

“This was a surprise to me as businesses may choose to delay capital investments if they believe that interest rate cuts are on the horizon,” Leach said, while adding that CEOs do feel positively about the local economy, so “it would make sense that companies are willing to make those investments now while the city is growing instead of waiting for interest rate cuts.”

Hiring is a similar story with one in four CEOs expecting below-average hiring and 7 percent who aren’t sure.

“It will be interesting to see if there are any interest rate cuts from the Federal Reserve before the end of the year,” Leach added.

“We just had an inflation report come out that showed inflation cooled a bit more in May. Many analysts from the big banks are predicting a rate cut at the September Fed meeting. The Federal Reserve will need to see a couple more months of progress on inflation to make the call if a rate cut is appropriate in September.”

If the Federal Reserve does cut rates, “that could stimulate business investments and send a signal that the inflation war is improving,” he continued. “However, the Fed needs to be careful to make sure that inflation has cooled significantly. If the data does not show that improvement, we could see no cuts before the end of the year.”

The sentiment from Sioux Falls CEOs around hiring and sales activity seems consistent with what’s occurring elsewhere in the country, Leach added.

“Most of the metrics are in line with what we are seeing at the national level; there does just seem to be some more optimism about doing business in Sioux Falls compared to the rest of the country,” he said.

CEOs’ perceptions of the Sioux Falls business climate continue to be generally positive though could be weakening slightly, with 88 percent calling it good or excellent compared with 91 percent three months ago.

The impression of the U.S. economy showed a similar slight decline, with 43 percent calling it good or excellent versus 46 percent three months ago.

“Sioux Falls continues to outperform the nation with expectations and the overall outlook for the business environment, and that’s certainly in line with what we are seeing in our company visits,” Mundt said, characterizing it as a “positive outlook with guarded optimism and careful planning.”

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.