Jan. 4, 2024

The new year appears to be starting on a more positive note for Sioux Falls businesses than it appeared a few months ago.

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-December and completed by nearly 70 CEOs and business owners.

Eighty-two percent said overall conditions at their business were good or excellent, an improvement from 75 percent in September and on par with how CEOs responded at the end of 2022.

“Higher interest rates seemed to have had little effect at dampening firm performance in the fourth quarter of 2023 as measured by our survey,” said Reynold Nesiba, a professor of economics at Augustana University.

In the fourth quarter, 57 percent of CEOs reported a slight or significant increase in sales activity, up from 47 percent three months prior.

Twenty-five percent reported a slight or significant decrease, while 17 percent were flat.

“Clearly, interest rate-sensitive sectors have experienced a decline,” Nesiba added. “For instance, according to the Realtor Association of the Sioux Empire, existing home sales in Sioux Falls are growing at their slowest rate since August of 2010. This will likely have negative secondary effects on construction and home furnishing sales. Forecasts of rate cuts next year likely give hope to consumers and to firms who rely on borrowing to finance capital investment.”

Prices for products and services continue to trend up, with more than half of CEOs reporting slight or significant increases.

“However, this is down from 61 percent in the third quarter,” Nesiba said. “This is also consistent with national data showing disinflation, a reduction in the rate at which prices are increasing. This should not be confused with deflation, when the overall price level falls.”

Nearly half of all CEOs reported a slight or significant increase in hiring in the fourth quarter, while 36 percent were flat and 11 percent were slightly or significantly down.

Big picture, “I definitely see some settling of activity into a somewhat ‘normal’ range, but our businesses tend to be performing very well,” said Bob Mundt, president of the Sioux Falls Development Foundation.

“While hiring has slowed, that may not be a bad sign but a sign that companies are finding their comfort zone with supply and demand. Sioux Falls still performs above the national norms, and I believe that’s a sign of our smart business practices, work ethic and our conservative practices. Insulated but not isolated.”

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.

“Things seems to have found a holding pattern at pretty high levels,” said Ron Wirtz, regional outreach director for the Minneapolis Fed. “Their overall assessment is down from its peak two years ago – when conditions were amazingly high. But their current overall assessment is still quite positive and has actually improved a bit over the last survey.”

There is a slight increase in the overall level of uncertainty, he added.

“That’s also not terribly surprising; it might be something of a regression to the mean.”

Survey responses also trended up in their perceptions of the Sioux Falls and U.S. economies. Eighty-six percent described the overall business climate in Sioux Falls as good or excellent, an improvement from 79 percent in the third quarter.

Perceptions of the U.S. economy, which historically lag CEOs’ thoughts on Sioux Falls, also showed improvement.

“The most striking result of our survey is that despite two global military conflicts and some of the highest interest rates since 2007, perceptions regarding both the U.S. and Sioux Falls business climate have rebounded from last quarter and last year,” Nesiba said.

“The war between Russia and Ukraine continues, and the war between Israel and Hamas began in October. The Federal Open Market Committee’s target fed funds rate is now between 5.25 and 5.5 percent. I am also struck by the almost 50 percentage-point gap between our CEOs’ regard for the U.S. business climate versus the Sioux Falls business climate. Is the overall U.S. business climate that much worse than the U.S. economy as a whole or does this outcome simply reflect survey respondents having less direct knowledge about the U.S. economy than they do about the local economy?”

The numbers suggest that could be true.

“Sioux Falls CEOs have a very positive view of their local economy but a pretty dim view on the national economy,” Wirtz said. “But this is despite the fact that the U.S. economy has been on par with the South Dakota economy. South Dakota had the advantage coming out of the depths of the pandemic, but U.S. growth caught up and, since the end of 2021, U.S. and South Dakota GDP growth has been very similar (on net); GDP growth since 2019 is almost identical between the two. GDP for Q3 was over 5 percent for both, which is a huge number. So it’s not clear to me what it would take for the national assessment to return to something closer to its pre-pandemic level.”

Looking ahead, CEOs appeared optimistic to start the year, with 83 percent expecting average or above-average activity in the coming quarter, up from 73 percent three months prior.

Hiring is holding its own to start the year as well, with one in five CEOs anticipating above-average hiring and most expecting at least average.

It’s a similar trend for capital expenditures, with seven in 10 CEOs expecting at least average spending.

“It appears that the economy is coming in for a soft landing — inflation is coming down toward the Fed’s 2 percent inflation target, yet unemployment has remained below 4 percent since December of 2021,” Nesiba said. “Economic growth has remained robust with third quarter GDP growth increasing at 4.9 percent. Even stocks, which were having a mixed year, have rallied since October. The likelihood of a recession in early 2024 seems to have receded. These concrete conditions have likely influenced our CEOs’ expectations regarding business activity, capital expenditures and hiring. All are positive.”

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].