April 6, 2020

After starting 2020 with an outlook trending up, Sioux Falls CEOs are reporting a dramatic drop in their business conditions and expectations for the months ahead.

That’s according to about 40 area CEOs representing businesses of all sizes who responded to the quarterly SiouxFalls.Business CEO survey, done in conjunction with the Augustana Research Institute.

The survey was administered during the last week of March, as ramifications of the COVID-19 pandemic began to become evident.

When asked about overall conditions at their business, nearly seven out of 10 rated it either good or fair. Three months prior, 93 percent said conditions were good or excellent. While 3 percent still said conditions are excellent, 23 percent now said conditions are poor and 5 percent aren’t sure.

Looking ahead to the coming three months, more than seven in 10 expect below-average business activity, while 27 percent expect average or above average, and 3 percent aren’t sure.

“The COVID crisis is creating winners and losers,” said Robert Wright, the Nef Family Chair of Political Economy at Augustana University.

“If your theater is shuttered or your restaurant reduced to takeout, you are going to cut back your work force, restrict capital expenditures and such.

“If your business remains open but is nonessential to people’s current lives, you will have to cut prices to attract customers.

“If your business remains open but is essential to people’s current lives, you will hire, plan capital expenditures and raise your prices.

“If your business is on the bubble between these categories, the future will be very uncertain, and you will respond as such on the survey.”

When asked about sales activity in the first quarter, one in three CEOs reported a significant decrease. Three percent saw a significant increase, while the rest were somewhere in between.

About three in 10 CEOs also reported a significant decrease in hiring in the first quarter, while 18 percent reported a slight or significant increase.

When asked about expectations for capital spending in the coming quarter, 13 percent expect it will be above average, and 13 percent expect it will be average. One quarter ago, 89 percent expected average or above-average spending. One year ago, the combined total for average and above-average spending was 82 percent.

Hiring also took a hit. Five percent of CEOs expect it will be above average at their business for the coming quarter, while 29 percent think it will be average. One quarter ago, 87 percent expected average or above-average hiring. One year ago, 85 percent expected it.

Slightly more than half of CEOs now think hiring will be below average for the coming quarter, while 11 percent aren’t sure.

“The changes around us are palpable,” Wright said, explaining that retail jobs that used to be one-person roles now can require three: two to run the register and clean in between patrons and one to supervise until the new procedures become ingrained.

“Other places can get by with the same personnel doing different things,” he said. “So at Taco Bell, workers now have to clean the parking lots of trash instead of dining rooms. It is a bigger area and more work because most people bus their own places when inside, where they can be more closely monitored.”

When asked about the overall business climate in Sioux Falls, CEOs also showed a big drop in perception, though it wasn’t all dire. One in four described it as poor, while 31 percent rated it fair and one in three CEOs still called it good or excellent.

That’s considerably better than their perception of the U.S. business climate, which the majority – 53 percent – rated as poor.

“Ultimately, the economy is simply the sum of what people do all day. If they do productive work creating goods that other people want, prosperity results,” Wright said. “If they spend all day idle, poverty results. No amount of stimulus or bailout money can change that. We have essentially been invaded and occupied. Only by retaking territory, from both the virus and the lock downs, will the people in those occupied territories return to spending their days creating goods.”