By Scout Nelson
In the post-pandemic period, the South Dakota economy has shown resilience, yet new economic indicators suggest that growth might slow in the coming months or years. According to a recent financial forecast from the Governor's Council of Economic Advisors, the state has maintained a strong financial position regarding housing, employment, income, and gross domestic production.
However, three economic experts interviewed by News Watch have observed that the unprecedented growth experienced since the COVID-19 pandemic in 2020 appears to be tapering off.
"I'd say our economy has grown very strongly over the last three years, uncharacteristically strongly, and this year, we are seeing kind of a reversion to the mean, kind of a return to more of the normal, if you will," said Jared McEntaffer, CEO of the Dakota Institute, a nonprofit focused on economic analysis in South Dakota.
Several key indicators in the state report warrant close attention. These include:
A notable drop in overall farm income since 2022, which could negatively impact the broader state economy.
Lower-than-expected state sales tax collections in June and July, raising concerns if the trend continues, especially with a potential sales tax cut on consumables.
A significant gap between the roughly 30,000 open jobs and the 10,000 unemployed individuals in the state, which could hinder business growth and productivity.
The state’s unemployment rate, currently at 2%, could lead to employers holding onto existing workers, limiting business expansion. Additionally, a steady decline in personal income growth since 2021 and a decrease in gross domestic product growth in 2024 indicate broader economic challenges.
Despite these concerns, McEntaffer noted, "There's no red flags that I'm seeing that jump out to me and say, 'Hey, we could be looking at a change in fortunes in South Dakota.'"
Farm incomes have fallen from a peak of $4.4 billion in 2022 to an estimated $3.8 billion in 2023. Factors such as the end of pandemic-related price surges and the ongoing conflict in Ukraine have contributed to the decline in commodity prices.
Joe Santos, a macroeconomics professor at South Dakota State University, explained, "I think the way you're going to see sluggishness in terms of economic activity in the state is probably going to be imported, in that the economic activity of this state reflects activity outside the state."
Low unemployment presents a double-edged sword for South Dakota. While non-farm employment has risen sharply since the pandemic's low in 2020, the tight labor market may stifle future growth. Economists argue that a 2% unemployment rate may be too low to sustain long-term economic expansion.
David Chicoine, a former president at SDSU, noted, "If you've got more jobs than you have people, that's going to put a constraint on the ability to grow because you're just not going to be able to have the output of a stronger labor force."
In conclusion, while South Dakota's economy remains strong, vigilance regarding key economic indicators is crucial to navigating potential challenges ahead.
Photo Credit:south-dakota-state-university
Categories: South Dakota, General, Government & Policy