CEO survey finds improved business conditions, huge support for local business climate

April 12, 2021

Sioux Falls business leaders keep feeling better about the future.

Those who responded to the most recent quarterly SiouxFalls.Business CEO survey, done in conjunction with the Augustana Research Institute, projected solid increases in business activity and renewed optimism heading toward summer.

The survey was conducted during the second half of March and completed by nearly 90 CEOs and business owners.

Survey respondents are either subscribers to SiouxFalls.Business or Pigeon605.com, making this the largest sample size since the survey began four years ago.

“They are up sharply from where we were one year ago at the beginning of the pandemic,” said Reynold Nesiba, professor of economics at Augustana University. “Expectations for the future remain increasingly optimistic.”

Business conditions

More than one in three CEOs surveyed said overall conditions at their businesses were excellent, and slightly more than half said they were good. Only 14 percent rated them as fair or poor.

The 86 percent who said things are good or excellent is up 50 percentage points from the first quarter of 2020 and essentially equal to the fourth quarter of 2020, with more moving from good to excellent.

Looking to the coming quarter, 60 percent said they anticipate above-average business activity, and 34 percent predict it will be at least average. That’s also a slight improvement from the fourth quarter.

“This is much better than the 26 percent in the first quarter of 2020 and even above the 86 percent answering similarly in the final quarter of 2020,” Nesiba said.

Sales activity was solid in the first quarter, respondents said, with 35 percent reporting significant increases and 44 percent reporting a slight increase. That’s an improvement from the fourth quarter, when 64 percent reported some level of increase.

“Based on the surveys we received, the V-shaped recovery from the COVID-19 pandemic that began at the end of the first quarter of 2020 has continued,” Nesiba said. “Sioux Falls business leaders expect this trend to continue next quarter. Business conditions, prices, sales, employment and investment are all moving in a flat or upward direction.”

State of hiring, capital spending

Hiring slowed down a bit in the first quarter, according to the CEO respondents, but not by much. Fifty-two percent reported slight or significant increases in hiring, compared with 55 percent three months ago.

Looking ahead to the next three months, 80 percent projected average or above-average hiring for new positions, compared with 81 percent in the previous quarter. One year ago, that was just 34 percent.

Capital investments for the coming quarter remain strong but a little softer than the start of the year, with 79 percent projecting average or above-average spending, compared with 89 percent in the previous quarter.

There also appears to be evidence of increases in the prices of goods being sold, compared with a year ago.

In the first quarter of 2020, 3 percent of respondents expected a “significant increase” in prices, and 22 percent expected a “slight increase.” By the first quarter of this year, both responses increased to 19 percent and 38 percent, respectively.

“Thus, we have moved from one-quarter of businesses seeing increased prices for their goods one year ago to more than half — 57 percent — seeing ‘slight” or “significant’ price increases,” Nesiba said.

“This answer is the same percentage as those responding in the fourth quarter, so there is no change in price expectations in the last three months.”

Overall business climate

Sioux Falls CEOs reported near-universal positivity about the overall business climate in the city, with 97 percent rating it good or excellent. That’s up from 92 percent three months ago and 33 percent for the same time last year.

“There is a widespread recognition and an accurate perception that business conditions are far better in Sioux Falls than they were at the beginning of last year, and they continue to be better than the modestly improving U.S. economy,” said  Nesiba, calling that “the strongest statistic” in the report.

Respondents held a less favorable view of the U.S. economy, though still improving. Thirty-six percent rated it good or excellent, up from 25 percent three months ago and 11 percent one year ago.

Looking forward, Nesiba said he is sticking with his assertion from three months ago that economic activity locally and nationally will be determined by how quickly vaccines are rolled out and how much stimulus the Biden administration can pass in a divided Congress.

“For both South Dakota and the U.S., the vaccination rollout is going better than expected. Similarly, the effects of the almost $2 trillion relief plan are already being felt across the country and in Sioux Falls,” he said. “GDP growth for the U.S. is estimated to increase in the 5 to 6 percent range this year. Congress continues to discuss a $2 trillion plan to rebuild infrastructure. If that passes, economic growth will be even stronger.”

For the nation, inflation has often, but not always, been associated with lower levels of unemployment, he added.

The national unemployment rate is declining but remains at a relatively high 6 percent.

“This indicates continued softness in the market. That said, we are moving in the right direction,” Nesiba said.

On April 2, the U.S. Labor Department reported that employers added 916,000 jobs in March. In South Dakota, unemployment in February was at 3.4 percent. compared to a low point of 2.5 percent in September 2019, well before the pandemic.

“One would expect any rising price pressure to be modest given the low inflation environment in the U.S. economy overall,” Nesiba said.

Over the past 12 months, U.S. inflation has been 1.7 percent — up from an annual rate of 1.2 percent reported last quarter. The 10-year Treasury bond yield has increased from 1.13 percent three months ago to 1.67 percent last week.

“This suggests either higher expected interest rates resulting from Fed policy and/or higher expected rates of inflation,” Nesiba said. “Although the trend is upward, they remain modest by historical standards. Given that 30-year Treasuries yield 2.34 percent, market participants seem to be building very low inflation expectations into their calculations well into the future.”

Are you a Sioux Falls-area CEO or business owner who would like to participate in future surveys? Email [email protected] to be added to the list.

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CEO survey finds improved business conditions, huge support for local business climate

How are Sioux Falls business faring this spring? We asked area CEOs about sales, hiring and the future — and they told us.

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