Some economists are 'cautiously optimistic' about the South Dakota labor market in 2023
Heading into a new year, the South Dakota labor market appears tight, while the national inflation is still at record high rates.
While being cautiously optimistic, some state economists feel like South Dakota is in a "good place." That’s thanks to South Dakota’s key industries like agriculture, which doesn’t see much turnover, and if it does in the future, the demand is still there.
“On either coast, you get these large booms and busts. In South Dakota, we really don’t have that. We have a relatively stable labor force,” said George Langelett, an economics professor at South Dakota State University. “... We are primarily agricultural-based, so if the economy slows down, if it’s a dairy farm, we still need the cows, we still need to get milk, so we tend to not lay off people in a recession like the coasts do.”
Since 2016, the farming sector in the state fluctuated between small decreases and increases. In the first half of 2022, there were significant increases in the farming sector, but it wasn't enough to keep up with inflation, according to Dakota Institute, a nonprofit research and analysis organization that supports the long-term economic growth and development of South Dakota.
In its Q4 report, Dakota Institute indicated earnings in dollars increased significantly in the first quarter, but not enough to keep up with inflation.
Some other factors to the state's strong labor market include the state attracting out-of-state residents, which some contribute to how the state handled the pandemic, strong labor force participation rates and continuing low unemployment rates.
“I’m feeling a little bit cautious about it. I am more optimistic about South Dakota than many areas. I think it would be wise to be prepared for a slight dip in economic activity,” said Mike Allgrunn, an economics professor at the University of South Dakota. “... I don’t think we’re going to have a breakout year, I don’t think anybody should be planning for huge growth. But I do think we can be above the national average and I think it will be an OK year.”
Allgrunn says he expects more of the same heading into the first quarter of 2023.
“I think South Dakota has every reason to believe that the labor market will continue to be strong over time, (there’s) a tight labor market, very low unemployment,” Allgrunn said. “As we head into the next couple of months, I don’t see any big changes, I don’t think the markets are going to get any tighter and I don’t think unemployment will get any lower. There’s also really no reason to think that there will be large increases in the unemployment rate or decreases in unemployment.”
In South Dakota, the unemployed worker ratio was 3 to 1 in 2022.
"There is a labor shortage, and it may be holding the state economy back from its growth potential," Dakota Institute stated. "The labor shortage isn't caused by people sitting on the sidelines, though. The labor shortage is a people shortage.
Sioux Falls’ unemployment among state’s lowest, facing tight labor market
Nationwide, the unemployment rate sits at about 3.7%. Normally, that number sits in the 4-5% range. In an update, the U.S. Bureau of Labor Statistics said employers across the country added 263,000 jobs in November.
“To be clear right now, the whole nation looks pretty good on the unemployment rate,” Allgrunn said.
In South Dakota, that number is below the nation’s average. While November rates haven’t been released by the state, the statewide unemployment rate is still low and was at 2.4% in October.
In Sioux Falls, that number is even lower. The Sioux Falls Metro Area had an unemployment rate of 1.8% in October of 2022, although it's up from September's low of 1.5%.
Jerauld County, which encompasses towns such as Wessington Springs, Alpena and Lane, has the lowest unemployment in the state at 1.6% – only 21 people in the county are unemployed. The state's total labor supply was 51,220 – with 16,910 of that supply coming from the Sioux Falls Metropolitan Area, according to the South Dakota Department of Labor and Regulation.
While low unemployment rates are generally considered a good thing, they can cause problems for employers.
“It’s a little bit concerning, because it’s getting quite tight and I think it does definitely favor the labor supply if you’re a worker, that’s definitely in your favor,” Langelett said.
But Allgrunn doesn’t expect the unemployment number to lower, or the labor market to get tighter.
Typically, South Dakota has a tighter labor market than other areas of the country, Allgrunn said. That’s due to state policies geared toward encouraging working, the small size of the population and a cultural expectation of working, he said.
The state’s labor force participation rate is 68.6%, higher than the national average of 62.1%.
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Salaries expected to increase, inflation is still high but starting to cool
According to a survey from the Willis Towers Watson Public Limited Company, overall salary increases are expected to rise to 4.6%. That’s higher than the 2022 average increase of 4.2%. There were approximately 28,000 responses to the survey, according to a statement.
Langelett expects the nationwide trend will make its way to South Dakota. While looking at wages, economists look at two things: nominal wages and real wages. Nominal wages are the amount of money paid whether it’s salary or per hour. Real wages refer to purchasing power.
“Without pay raises, purchasing power goes down, real wages become negative. So, oftentimes, if companies don’t give regular pay raises, they don’t have to nearly match but they need to be at least adequate,” Langelett said. “People quit, they change jobs and kind of chase the rise in pay at other companies, and this is actually very detrimental for all businesses.”
In Dakota Institute's Q4 data, the organization said nominal incomes are continuing to increase, but the real income growth has turned negative.
While the state reported positive income growth in the first quarter of the year, the inability to keep up with inflation led to a greater decline, according to the Dakota Institute. But, it's still much better than compared to other areas in the country – which reported a 4.4% decrease in personal income, while South Dakota reported a 1% decrease, according to the Dakota Institute.
Everyone is starting to feel the financial blow with inflation at high levels. In October, inflation slowed to 8% for the fourth consecutive month, according to Trading Economics, which predicts that number to reach 7.6% in the next report. That’s lower than September’s total of 8.2%.
"The most recent October inflation report from the Bureau of Labor Statistics did indicate slowing inflation which might give the Fed some breathing room, but there is also evidence that inflation will remain elevated for many months to come," Dakota Institute said in its report."
While inflation has started to cool off, it’s still much higher than it has been for years.
“It’s definitely a good sign to see the inflation slowing down, and I do think we’ll continue to see that slowing … I think it’s clear that we will not be back down to 2% inflation which is the Federal Reserve’s target,” Allgrunn said. “We will not be down to a 2% inflation (rate) within the coming year. I expect that to stay elevated, I think you should kind of be thinking about something more in the 5% range for the average for the coming year.”
The core inflation rate fell from 6.6% to 6.3% from October to September. Core inflation is the change of goods and services, not including food and energy sectors. The all-items Consumer Price Index (CPI) increased 0.4% from October, while food increased by 0.7%.
Still, food prices were 10.9% higher than just a year ago, according to data from the U.S. Department of Agriculture’s Economic Research Service. Shelter costs have increased by 6.9%, compared to 3.3% in January 2020, according to the Dakota Institute.
“I think there’s a significant amount of anxiety. Two years ago, people staying home was the issue, now we have inflation,” Langelett said.
Businesses offering higher pay wages can impact inflation, Guzzetta said. While inflation is high throughout the country, Guzzetta said that in-state, some of those costs are offset by the lack of taxes on income and low real estate taxes.
"Those are kind of things that can help when you do have the costs of goods and services have risen so quickly," Guzzetta said. "... We're not on the high end of what has happened, which is a good thing. We're not seeing what the coasts are doing as far as gasoline and just the raises too and prices of meats, poultry and eggs."
The White House Administration, Congressional Budget Office, Blue Chip and the Federal Open Market Committee all project that inflation will moderate into 2023. Goldman Sachs, an American multinational investment bank and financial services company has forecasted that the personal consumption expenditure will fall to 2.9% by December 2023, down from it’s current rate of 5.1%.
Sioux Falls officials adding workforce programs to retain workers in South Dakota
In an effort to curb the tight labor market, the Sioux Falls Development Foundation has introduced a number of programs.
“A tight labor market is not a bad thing if you have strategies and programs in place to address and continue to infuse the pipeline with a quality supply of talent and that’s what we’re looking for,” Sioux Falls Development Foundation’s Vice President of Talent and Workforce Denise Guzzetta said.
The Sioux Falls Development Foundation has also introduced programs such as Career Connections and Forward Sioux Falls.
In the Career Connections program, the development foundation has connected 58 businesses to 402 entry-level talented high school students in five local districts. In 2021, the program had 59 students, Guzzetta said.
That includes programs inside schools that expose both middle and high school students to new ideas and career paths.
“What happens is people know what they see, and so that’s where career exposure early on in middle schools really helps,” Guzzetta said. “It then helps when they discover something that they like … The jobs that we’re seeing, that are going to be plentiful in the future are going to require competencies in math and science. So that’s where having that sort of pipeline and really kind of focusing in, it’s going to play well to the needs of the marketplace.”
In 2023, the development foundation is planning to introduce pathways to students in the Career Connections program that are interested in both manufacturing and healthcare to increase workforce readiness through certification programs offered by Southeast Technical College in Sioux Falls. That’s two labor force areas the state is anticipating to grow in the next 10 years.
The foundation also implemented UPSKILL Sioux Falls, a program to assist current employees needing training. UPSKILL Sioux Falls was created to assist current employees needing training. It’s a cost-sharing and instructor-led flexible path program offered by Southeast Technical College and includes training for CDL license, which had a severe shortage, Guzzetta said.
The program has added 109 additional Class A and Class B CDL licenses, according to Guzzetta. The plan is for that program to continue into the next year.
“Career Connections and UPSKILL (Sioux Falls) programs have shown tangible results in adding quality supply to our local labor market,” Guzzetta said.
Forward Sioux Falls, a joint venture between the Greater Sioux Falls Chamber of Commerce and the Sioux Falls Development Foundation, also serves as a channel between employers and those looking for work. In 2022, the development foundation connected 18,745 people to 141 Forward Sioux Falls member partners through workforce programming.
Another initiative the development foundation is exploring is “Talent Draft Day,” at Southeast Technical College. There, students have opportunities for speed networking, training camps, employment and internship information, scholarship information and student development. That event will be held on March 23, 2023.
South Dakota's economy benefits from COVID-19 approach, out-of-state moves
Langelett also pointed to how the state handled the COVID-19 pandemic, not shutting the state down as a factor in the increase of people moving to South Dakota.
That’s also attracted some businesses to come to the state, he said. Including AEsir Technologies, which recently made the move to Rapid City. That company said it could eventually employ up to 1,500 people, according to the Associated Press.
In 2021, South Dakota reported a total inbound rate of 68.8%, according to United Van Lines, an organization that tracks people moving in the country. According to that data, half of the population that made the move were in the age range of 45 to 64. In 2021, South Dakota ranked second on the list of top moving destinations. Vermont was named the top state.
“I’m thankful to be living in South Dakota, I really am,” Langelett said. “... For those in high school, for those in other states moving here, the job market is very strong. I think that’s very beneficial to the workers of South Dakota, which is actually beneficial to the state of South Dakota.”
Sioux Falls has seen some of that growth. Guzzetta said that there have been roughly 7,000 people who have made the move to Sioux Falls in the last year.
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South Dakota small businesses might be impacted the most
Still, Langelett predicted small businesses will be impacted. He indicated a double hit of whole sales costs and transportation costs.
“The question is for the businesses is how much they can pass on to consumers how much they have to lower their margins and some of the small businesses will not make it unfortunately in South Dakota,” Langelett said.
Sioux Falls Mayor Paul TenHaken locally declared Small Business Saturday a “holiday,” in an effort to support small businesses and encourage residents to shop locally.
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Aberdeen business impacted by staffing shortages, adjusts hours
At Millstone in Aberdeen, the restaurant's hours of operation are now temporarily reduced, a change that happened in recent months.
Restaurant owner Duane Sutton said the change is 100% because of available labor. Finding people to work the evening shift at the restaurant has become increasingly more difficult. Having employees available to train new employees also became a challenge, he said.
"Training and quality of service were suffering," he said.
Once a restaurant that was open 24 hours a day, the restaurant started serving from 6 a.m. to 11 p.m. in 2007. Then, after COVID-19, hours of operation went from 6 a.m. to 8 p.m.
While the new service hours until 3 p.m. are temporary, Sutton said adding that shift back means hiring about 10 people (servers, cooks and dishwashers) to cover the evening shift. Millstone celebrated its 50th year anniversary a year ago.
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South Dakota Department of Labor 2020-2030 projections
While the state department doesn’t offer short-term projections, it has released industry employment projections for the next 10 years. In the country, employment is expected to increase by 7.7%, according to the South Dakota Department of Labor. But, in South Dakota, that number is expected to grow by 8.5%.
Computer and mathematical occupations, food preparation and serving-related occupations and health care practitioners are expected to be among the fastest-growing groups in the state.
Wind turbine service technicians (76.9%), nurse practitioners (55%) and cooks (42.9%) are the top three industries by anticipated percent growth.
Officials for the state’s department of labor were contacted, but did not provide comment and referred to the data. The department releases state data on the 15th of every month.
Due to incorrect information provided by the Dakota Institute with information regarding the Survey of Professional Forecasters, this story has been updated.
This article originally appeared on Sioux Falls Argus Leader: South Dakota tight labor market continues into 2023
