South Dakota saw record unemployment rates in 2022. Here's what that means.

South Dakota hit a record low unemployment rate for 2022. The year-average was 2.3%, according to data from the South Dakota Department of Labor and Regulation (DLR).

But while this set a new record in our state’s history, at least since the department has been keeping track as far back as 1990, South Dakota traditionally has low unemployment rates, especially compared to other states.

Gov. Kristi Noem touted the state’s economic strength in a press release last week.

“South Dakota’s jobs market is thriving,” she said. “We are setting an example of the power of the American work ethic. The careers of the future are available right here. Thanks to our incredible economic strength, fewer South Dakotans than ever are having to rely on unemployment benefits to keep food on the table for their families.”

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South Dakota staying ahead of the unemployment curve

The national average for 2022 was a 3.6% rate, according to the U.S. Department of Labor (DOL).

“South Dakota traditionally has a lower unemployment rate than the rest of the country,” said Mike Allgrunn, an economics professor at the University of South Dakota. “This is low, even for South Dakota. But it’s not all that surprising.”

In December 2022, specifically, the national unemployment rate was 3.5%, compared to South Dakota’s unemployment rate of 2.3%, according to the DLR.

Sioux Falls had a rate of 1.9% in December, and the lowest single month for the state was September 2022, when the rate was 1.8%.

“Obviously, with COVID, we saw record high unemployment rates. We're coming off of that high and coming down to a new low as our economy is booming right now,” Allgrunn said. “There's lots of pent-up demand that's still working its way through our labor force, and participation is relatively high. But it’s really sort of a two-edged sword.”

Labor market participation on a steady decline

Allgrunn said while low unemployment is great for people and efficient for our economy, it leaves us with a tight labor market in the sense that employers are struggling to find workers.

“In some sense, there’s some economic growth potential we're leaving on the table," he said. "There's productive capacity that we can still use, but we just can't find the workers to do it."

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South Dakota and the country as a whole hit a peak in 2000 for how many eligible workers were participating in the labor market, Allgrunn said.

In South Dakota, the labor force participation rate stayed around 73% in 2000, meaning seven out of 10 people ages 16 or older were employed or actively seeking work, according to the DOL. The average unemployment rate at the time was also 2.5%, which was the previous record low, according to the DLR.

The number of people in the labor market has been on steady decline since then, but generally speaking, this was expected, Allgrunn said.

Part of the reason is because there have been many baby boomers leaving the workforce as they get older, and there’s been a trend of young people not entering the workforce as early, often because of education or simply staying with their parents for longer.

South Dakota's labor force participation rate hit its all-time low in 2020 and is now at about 68.6%, according to the DOL, but Allgrunn thinks it could start to increase again.

“It probably won’t reach the levels we saw in 2000, but it is possible to see that go up,” he said.

And a recession might have something to do with it.

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South Dakota's current labor market could fare better in a recession

Some economists speculate the United States could be headed for one, although the data can tell conflicting stories.

Labor force participations rates could increase as some people will want to join the labor force during the recession to help their household out, Allgrunn said. But at the same time, unemployment rates could also go up.

“Generally speaking, unemployment increases during recessions,” he said. “But it depends on how big the recession is and how long it goes on. … And the timing of when a recession hits and when unemployment rates increase also don’t line up exactly.”

Allgrunn said unemployment rates are most likely to increase at the tail end of a recession if some of the people who are trying to enter the labor force haven’t found a job yet.

“But in South Dakota at least, I don’t expect unemployment rates to go a whole lot higher in the event there is a recession just because there are so many job openings available,” Allgrunn said.

“Of course, it’s not always as simple as giving the unemployed people those jobs…. But I think even if we do see some slowdown in economic activity, there’s still room for a lot of people to find jobs and I wouldn’t expect large increases in unemployment throughout the rest of the year.”

This article originally appeared on Sioux Falls Argus Leader: South Dakota saw record unemployment in 2022. Here's what that means.