So far in the post-pandemic period, the South Dakota economy is humming along nicely, though some new economic indicators reveal concerns that growth might slow in the coming months or years.

According to a recent financial forecast produced by the Governor’s Council of Economic Advisors, many data points show the state has been in a very strong financial position in regard to housing, employment, income and gross domestic production.

However, three economic experts asked by News Watch to review and analyze the state forecast said the almost unprecedented growth seen 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 group focused on analyzing and aiding the South Dakota economy.

Furthermore, the experts said a few indicators in the recent state report should be watched closely, as they carry potential warning signs for the future.

Chief among those concerning indicators:

• A somewhat stark drop in overall farm income since 2022 that can cause negative ripple effects across the entire state economy.
• Lower-than-expected state sales tax collections in June and July, which could portend a crisis if that trend continues – especially if voters decide in November to end the sales tax on consumable goods.
• The vast divide between the roughly 30,000 open jobs in the state and the 10,000 unemployed people in the workforce, which can stall business growth and productivity.
• The state’s 2% unemployment rate, which could lead to employers hoarding existing workers and preventing businesses from being able to expand or grow.
• A steady slide in growth rate in personal incomes since 2021.
• A slip in gross domestic product growth in 2024 that may be the result of other economic factors that are slowing growth overall in the state.

Despite those results, McEntaffer said that, “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 fall from peak

According to the state report, overall farm income in South Dakota was around $700 million in 2006, then rose to $3.7 billion in 2011 before dropping to about $1.2 billion in 2016-17. When the pandemic hit in 2020, however, demand and commodity prices both rose sharply and as a result, so did farm income, reaching $3.7 billion in 2021 and peaking at $4.4 billion in 2022.

Since then, however, prices have come down and overall farm income fell as well, to $3.8 billion in 2023, with prices for corn and soybeans continuing to decline in 2024. Spending on farm equipment also dipped in 2023, the state report showed.

Joe Santos, a macro economics professor at South Dakota State University, said commodity prices paid to state farmers rose sharply during the COVID-19 pandemic and when war broke out in Ukraine, due to the loss of production of grain in Ukraine and the initial disruption of supply lines that drove up demand.

“Obviously, we don’t want to see a pandemic, and we’d love to see peace in Ukraine,” he said. “But without those pressures, prices will sort of ease. And while they won’t go into the toilet, they won’t be where they were when you had a pandemic and the belligerent activity that drove up commodity prices.”

According to state data, non-farm employment growth has risen sharply since hitting a 12-year low point during the height of the pandemic in 2020, when the state had about 350,000 people working. 

Since then, non-farm employment has risen to about 470,000 people working.

Meanwhile, the unemployment rate in South Dakota, which was about 3.5% in 2014 and which rose to 8.5% during the pandemic, has now fallen to around 2%, according to state data. The national unemployment rate has followed a similar pattern, jumping to more than 14% in 2020 and now hovering around 4.5%.

David Chicoine, a former president and economics professor at South Dakota State University, said economists across the country are trying to determine what level of unemployment is acceptable to sustain larger economic growth.

“Clearly, 2% is, in most people’s view, too low because that means you don’t have enough workers to take advantage of new opportunities and sustain long-term growth,” he said.

The other concerning data point is that the state has about 33,000 open jobs and 10,000 unemployed people, which Chicoine said can stunt productivity and growth in the business sector.

“I still think the economy is going to grow, but at what pace?” he said. “If you’ve got more jobs than you have people, that’s going to put a constraint on the ability to grow.”

After two years of consistently steady growth in revenues, buoyed by billions in federal government stimulus money, revenue growth slowed in June and July.

In July, the state experienced a decline in revenues compared to legislative estimates. The June data shows an increase of just 0.4% over legislative estimates, and July saw a 3.7% negative growth figure, with a $9 million shortfall compared to legislative projections.

Chicoine said the recent slowdown is not a major concern unless the trend continues.

“We won’t know the full magnitude of any decline until we get there,” Chicoine said. “The negative growth that we saw suggests the downward trend could continue and accelerate.”

In their final analysis, all three economists said they see a positive economic future for South Dakota.

“There is a kind of a deregulatory, pro-free enterprise mindset in the state, and I suspect that’s a tailwind, not a headwind,” he said.

This story was produced by South Dakota News Watch, an independent, nonprofit news organization. Read more in-depth stories at sdnewswatch.org and sign up for an email every few days to get stories as soon as they’re published. Contact Bart Pfankuch at bart.pfankuch@sdnewswatch.org.