For the first time since 2018, all business leaders responding to the quarterly SiouxFalls.Business CEO survey said conditions at their businesses are good or excellent.

That’s up from 86 percent who rated their businesses good or excellent at the end of the first quarter, and up from 37 percent who said the same one year ago.

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

The latest survey was conducted during the second half of June and completed by 63 CEOs and business owners.

“Business conditions, prices, sales, hiring and capital investment all remained at or above last quarter’s robustly optimistic reports,” said Reynold Nesiba, a professor of economics at Augustana University.

“The future appears bright based on this quarter’s survey results.”

The CEOs are nearly universally positive about the Sioux Falls business climate, with 69 percent rating it excellent, compared with 55 percent who said that last quarter and 9 percent who said that a year ago.

Perceptions of the U.S. business climate also have improved noticeably, with 68 percent calling it good or excellent, compared with 36 percent who said that three months ago and 9 percent who said that this time last year.

“There is a clear sense the U.S. economy has been improving over the last year and that business conditions in Sioux Falls are above the national average,” Nesiba said, crediting “declining rates of COVID infections and robust fiscal stimulus measures passed during the end of the Trump and beginning of the Biden administrations as the two key drivers of these trends.”

For the second quarter, more than half of CEOs reported a significant increase in sales activity, up from 35 percent in the prior quarter. Thirty-five percent reported a slight increase. Four percent reported a decrease.

Seventy-one percent reported a slight or significant increase in hiring, up from 52 percent in the prior quarter. Seven percent reported a slight or significant decrease in hiring.

“Based on our second 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,” Nesiba said.

Pressure on pricing is apparent. Nearly three in 10 CEOs reported a significant increase in their prices for products and services in the second quarter, and 52 percent reported a slight increase. Fourteen percent said there had been no change.

“Remember that inflation is not always a bad thing. If one’s output prices are rising faster than costs of production, this suggests higher profit margins,” Nesiba said.

“For the nation, inflation has often, but not always, been associated with lower levels of unemployment. The national unemployment rate is declining, but remains at a relatively high 5.9 percent. This indicates continued softness in the national labor market. That said, from an employee’s perspective, the nation’s labor market is moving in the right direction.”

Looking ahead to the next three months, two-thirds of CEOs are expecting above-average business activity and the other third are expecting at least average activity. That’s also an improvement from the first quarter, when 5 percent projected below-average business activity.

Nearly all respondents also said they expect average or above-average capital expenditures in the next three months, also ahead of the previous quarter.

Hiring appears to be at least attempting to pick up too, despite the ongoing tight labor market. Nearly half of CEOs expect above-average hiring in their businesses in the next three months, compared with 31 percent who said that in the first quarter. Only 3 percent project below-average hiring, compared with 7 percent three months ago.

On July 2, the U.S. Labor Department reported that employers added 850,000 jobs in June. In South Dakota, unemployment in May, the latest data available, was at 2.8 percent, compared to a low point of 2.5 percent in September of 2019, well before the pandemic.

Looking ahead

Looking ahead, there is evidence of rising inflation, Nesiba said.

“Over the last 12 months, U.S. inflation has been 5 percent. This does not appear to be reflected in interest rates,” he said.

The 10-year Treasury Bond yield increased to 1.37 percent last week, up from 1.13 percent six months ago.

“This suggests that either market participants expect higher interest rates resulting from Fed policy and/or higher expected rates of inflation,” he said.

“Although the trend is upward, they remain quite modest by historical standards. Given that 30-year Treasuries yield only 1.99 percent, market participants seem to be building very low inflation expectations into their calculations for the next three decades. Rates on 30-year mortgages also remain just above 3 percent. Market participants appear to believe that recent price increases are transitory spikes that are expected to dissipate.”

South Dakota has been allocated more than $11 billion in pandemic-related stimulus, according to the South Dakota Legislative Research Council.

“This stimulus money has gone or will go to either South Dakota agencies or local organizations and citizens,” Nesiba said.

“Given that the state’s entire budget is about $5 billion per year, this level of federal stimulus in the last year has been a key factor in South Dakota’s high rate of growth, low unemployment and general sense of optimism.”

That local optimism is consistent with national trends, he added. U.S. GDP growth was revised up by the Congressional Budget Office from an expected annual growth rate of 3.7 percent in February to 7.4 percent as of July 1.

“Growth is expected to slow in 2022 and 2023 as federal recovery expenditures fall,” Nesiba said.

“Growth and optimism may have been even higher if South Dakota had higher vaccination rates for COVID. Higher vaccination rates give potential workers and customers more confidence to return to in-person employment, shopping and dining out.”

Thanks to all who completed this quarter’s survey! To be added to the list, email [email protected].