April 15, 2024

Sioux Falls CEOs are reporting stronger business conditions heading into spring than they were at the end of 2023.

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-March and completed by almost 70 CEOs and business owners.

Eighty-nine percent said overall conditions at their business were good or excellent, an improvement from 82 percent in December 2023 and 83 percent one year ago.

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.

“My sense is this probably has something to do with good customer demand coupled with inflation pressures that continue to ease,” said Ron Wirtz, regional outreach director for the Minneapolis Fed. “Retail pricing to customers continued to moderate, particularly for those reporting large price increases, which likely means they are seeing similarly lower inflation in the cost of goods from their suppliers at the wholesale level.”

Nearly half of CEOs reported increased sales activity to start the year, while 27 percent said it was flat compared with the prior quarter. One in four reported a decrease, which is on par with the end of 2023.

Nearly one in three CEOs reported increased hiring in the first quarter, and 62 percent were the same as the prior quarter. Only 3 percent reported a slight decrease in hiring, compared with 11 percent reporting a drop at the end of the year.

“On net, that’s still healthy employment demand and matches what we’re hearing more generally — that the break-neck hiring pace we saw a year or two ago has moderated but is still quite positive overall,” Wirtz said.

Prices for goods and services showed some abatement. While more than half reported at least a slight increase, 13 percent reported a decrease, compared with 6 percent in the prior quarter.

“This stood out in the spreadsheet,” said Reynold Nesiba, a professor of economics at Augustana University, who called it the best news in the survey.

“One year ago, 64 percent of CEOs reported price increases. This has fallen to 53 percent in the first quarter of 2024. This continues to be most firms, but it is a declining share. The persistent price pressures we saw from 2020 through June of 2022 do seem to be receding in our local survey in a way that is consistent with national data.”

CEOs’ perceptions of the Sioux Falls business climate appear to be improving, with 91 percent calling it good or excellent, compared with 86 percent at the end of 2023 and 89 percent a year ago.

Perceptions of the national business climate also are improving slightly though lag well behind the local economy.

“I continue to be struck by this gap between perceptions of national economic conditions and those at the local level,” Nesiba said, while adding he thinks the increased optimism is caused by a number of factors.

Inflation has dropped from 9 percent in June 2022 to 3 percent in February as measured by the consumer price index.

“Second, because of declining inflation, the Fed has not raised its fed funds target interest rate since July of 2023. In December, they suggested that rate cuts are coming,” Nesiba said.

“Third, employment growth remains strong nationally. The Bureau of Labor Statistics reported over 300,000 new jobs in March of 2024. The overall unemployment rate has remained below 4 percent for 26 months. The labor market has not had a period of sustained low unemployment like this since the late 1960s.”

Finally, despite aggressive rate hikes, the U.S. has avoided a recession, he said.

“The U.S. continues to experience stronger economic growth in the second half of 2023 than most European Union, OECD and G20 nations,” Nesiba said.

“Business leaders across the nation, as well as those here, look forward to the Fed cutting their overnight fed funds target rate in 2024. Will that begin in June? Will they make three rate cuts in 2024? We will see. If these policy decisions are made in the affirmative, it will reflect continued progress on reducing overall inflation and the hope of lower commercial and other interest rates this year.”

Looking ahead, almost 30 percent of CEOs expect above-average business activity in the second quarter, and 53 percent expect it to be average, similar to the start of the year.

Capital expenditures are estimated to be average or above average for more than three in four CEOs.

And hiring is expected to be at or above average for 72 percent in the second quarter.

“The most important factor influencing hiring and investment decisions is a firm’s own sales and expected future sales,” Nesiba said. “Income and population growth in Sioux Falls will be important drivers of that for those firms whose primary sales area is located here.”

The sentiment is a familiar one locally, said Bob Mundt, president of the Sioux Falls Development Foundation.

“I think this is typical Sioux Falls when I say we are insulated but not isolated,” he said.

“Local expectations are positive that business conditions and planned hirings will continue to be strong, indicating a strong business climate for Sioux Falls even though confidence in the national economy is sagging. We’re still early in a year of national elections and economic uncertainty, so we need to stay vigilant about making strong, informed business decisions.”

The projections “all came in at very healthy levels,” Wirtz agreed. “There’s a little bit of flutter higher and lower here and there. But overall, it looks like Sioux Falls has sort of plateaued at a pretty comfortable level despite all of the challenges businesses face today.”

He wonders, however, about the potential of construction to slow down after several years of activity “that blew the doors off previous records and what ripple effects that might have,” he said, noting that building permits for commercial and multifamily projects dropped in Sioux Falls in the first quarter.

“Maybe it’s the breather everyone needs,” Wirtz said. “Single-family permitting has seen a very nice jump through the first three months compared with last year, which is a good sign, but it’s from very low levels last year. So those are a few metrics I’ll be watching in the future.”

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].