Oct. 11, 2021

Viewed on their own, the business conditions and expectations reported by Sioux Falls CEOs would be considered strong across the board.

But compare them to three months ago, and it’s evident things aren’t quite as positive as in the prior quarter.

“Business executives in Sioux Falls remain positive about current business conditions and performance. They are also optimistic about the future but slightly less so than they were three months ago,” said Reynold Nesiba, a professor of economics at Augustana University.

SiouxFalls.Business conducts the quarterly survey in conjunction with the Augustana Research Institute.

The latest survey was conducted during the second half of September and completed by 64 CEOs and business owners.

Sioux Falls business leaders continue their historic trend of feeling better about the local business climate than the national one.

Nine in 10 CEOS reported that the Sioux Falls business climate was good or excellent. This is up from 82 percent in the third quarter of 2020 and down only slightly from the 95 percent reported in the second quarter of 2021.

In contrast for the U.S. business climate, that number was 57 percent — up from 24 percent one year ago and down from 68 percent three months ago.

“There is a clear sense the U.S. economy has improved over the last year but declined over the last quarter,” Nesiba said. “Business conditions in Sioux Falls are regarded as well above the national average.”

The survey shows that 96 percent of firms reported business conditions at their organization as excellent or good. This is up 29 percentage points from the 67 percent reporting similarly in the third quarter of 2020.

Businesses reporting a significant or slight increase in sales actively rose from 68 percent in the third quarter of 2020 to 77 percent by the end of the third quarter of 2021. This is down from last quarter’s 86 percent.

“Perhaps more importantly, 93 percent of business leaders replying to this month’s survey expect above-average or average business activity in the coming quarter,” Nesiba said. “This is much better than the 73 percent in the third quarter of 2020 but below the 100 percent answering similarly three months ago.”

Prices and expectations

There appears to be some evidence of increases in the prices of goods and services being sold. In the third quarter of 2020, 9 percent of respondents saw a significant increase in the prices of the products and services they sell, and 32 percent saw a slight increase. By the third quarter of this year, both responses increased to 30 percent and 34 percent, respectively.

“We have moved from 41 percent of businesses seeing increased prices for their goods one year ago to 64 percent seeing slight or significant price increases,” Nesiba said. “This answer is lower than those responding in the second quarter of 2021 when 81 percent saw slight or significant price increases.”

National data shows that inflation continues but appears to be slowing, he said. The Consumer Price Index rose 5.3 percent in August, down slightly from 5.4 percent in July.

Hiring, capital investments

During the third quarter of 2021, most employers – 56 percent – experienced slight to significant increases in hiring. This is up slightly from 50 percent in the third quarter of 2020 and below the 71 percent reported in the second quarter of 2021.

Positive expectations for the future persist, albeit reduced from the previous quarter. Of those reporting, 36 percent expect above-average hiring activity in the fourth quarter of 2021 and 50 percent expect average employment activity. Thus 86 percent — down from 93 percent last quarter — expect average or above-average hiring. One year ago, this sum was 59 percent.

“Hiring is strong and expected to stay that way,” Nesiba said.

“Actual employment for the nation and the state are also positive. The national unemployment rate continues to decline but remains at a relatively high 4.8 percent. From an employee’s perspective, the nation’s labor market is moving in the right direction.”

On Oct. 8, the Labor Department reported that employers nationwide added 194,000 jobs in September.

“This is far slower than average monthly job growth this year of 561,000,” Nesiba said. “In South Dakota, unemployment in August, the latest data available, was at 2.9 percent, compared to 4.7 percent in August of 2020.”

In the CEO survey, 74 percent of firms reported slight or significant increases in capital investment in the third quarter. This is up from 62 percent a year ago. Those reporting significant increases rose from 12 percent to 33 percent in the past 12 months.

Expectations for capital expenditures are above current performance.

“Most firms — 55 percent expect average capital expenditures and 28 percent expect above-average expenditures,” Nesiba said. “So 83 percent expect average or above-average investment for the final quarter of 2021. This is up from 71 percent one year ago.”

Outlook and analysis

Beginning this quarter, survey results also are provided to the Sioux Falls Development Foundation and the Federal Reserve Bank of Minneapolis to assist in their understanding of area business conditions.

“Overall, it seems like CEOs there are quite upbeat and are seeing good business. That’s the main story and great news,” said Ron Wirtz, regional outreach director for the Federal Reserve Bank of Minneapolis.

The moderately lower sentiment, especially at the very top end, is consistent with what the Minneapolis Fed is starting to see in its data and hear from business contacts, he said.

“Things are good but maybe not quite as positive as they were a few months ago, and that’s because there is a trifecta of factors that firms have to deal with on a daily basis: rising input prices, persistent lack of labor and supply chain problems,” he said. “We’ve seen these three challenges persistently in our own surveys, which includes many respondents from South Dakota.”

Much of the enthusiasm earlier in the year came from the fact that demand was strong, COVID-19 vaccines were available and people believed things were going to go back to normal, Wirtz continued.

“They have, and they haven’t,” he said. “Many businesses are still doing pretty well, but some of the issues that businesses expected to get resolved or at least see some relief from – input prices, supply chains and labor – haven’t materialized, in part because of the Delta variant. And those persistent challenges are creating a strain on many businesses and enough to check some of that earlier enthusiasm it seems. Thankfully, many are still seeing solid demand, and at the end of the day, that covers for a lot of other problems.”

The results do track with what’s being seen nationally, Nesiba agreed.

U.S. gross domestic product growth was revised down by the Conference Board to a 5.5 percent annualized rate in the third quarter from an expected annual growth rate of 6.6 percent in the second quarter.

“They predict 2021 annual year-over-year growth to come in at 5.9 percent, and this seems consistent with the general sense of optimism by Sioux Falls CEOs, particularly regarding capital investment expenditures and hiring,” Nesiba said.

“Based on our third quarter survey results, the V-shaped pandemic recovery continues. Business conditions, prices, sales, employment and investment are all moving in an upward direction compared to a year ago, but with slightly less enthusiasm than the previous quarter.”

Looking forward, survey respondents are optimistic about the trends in business activity, investment, hiring and the South Dakota business climate, but less so than they were in July.

“Robust fiscal stimulus passed during the Trump and Biden administrations have helped maintain effective demand,” Nesiba said. “The diminished expectations since July are likely due to the persistence of the Delta variant and less certainty about infrastructure spending by the current Congress and administration.”

Are you a Sioux Falls-area CEO who would like to participate in our anonymous survey? Email [email protected] to be added to the list.