Jan. 3, 2022

Sioux Falls CEOs are more optimistic about conditions in their business than they were three months ago, according to the most recent SiouxFalls.Business CEO survey.

SiouxFalls.Business conducts the quarterly survey in conjunction with the Augustana Research Institute.

The latest survey was conducted during mid-December and completed by 88 CEOs and business owners, who conveyed “almost universal optimism regarding current business conditions in Sioux Falls,” said Reynold Nesiba, a professor of economics at Augustana University.

Business conditions are rated high and expected to get even better, the CEOs said.

Ninety-four percent reported conditions at their business are good or excellent, up 11 percentage points from one year ago and about the same as last quarter.

“Perhaps more importantly, 97 percent of business leaders expect above-average or average business activity in the coming quarter,” Nesiba said. “This is up from 89 percent in the fourth quarter of 2020 and even above the 92 percent answering similarly three months ago.”

Sales appear to be giving CEOs good reason for optimism. Businesses reporting either a significant or slight increase in sales activity rose from 65 percent in the fourth quarter of 2020 to 83 percent by the end of 2021. This is up from last quarter’s 77 percent.

Survey results also are provided to the Sioux Falls Development Foundation and the Federal Reserve Bank of Minneapolis to assist in their understanding of area business conditions.

“This would seem to be a very upbeat set of CEOs,” said Ron Wirtz, regional outreach director for the Minneapolis Fed.

“It’s generally in line with and probably even a bit more upbeat than many of the reports we are getting from businesses in South Dakota and neighboring states.”

That could be because many of the CEOs represent larger firms, he said.

“We’ve found a very persistent pattern that larger firms have tended to see better revenue trends and overall activity during the recovery,” Wirtz said.

The results also reflect what the Sioux Falls Development Foundation is hearing from its members, president and CEO Bob Mundt said.

“It looks as if most businesses are doing well, are happy with their year and looking forward to continued growth opportunities,” he said. “I think the Sioux Falls region and South Dakota in general are in a  strong position to capitalize on the restrictions and policy issues affecting others.”

Prices and expectations

The survey does suggest upward pressure on prices. In the fourth quarter of 2020, 14 percent of respondents expected a significant increase in the prices of the products they sell and 43 percent expected a slight increase.

By the final quarter of this year, those expecting a significant increase rose to 27 percent — up 13 percentage points from one year ago. Those expecting a slight increase remains about the same at 42 percent.

]”In sum, we have moved from 57 percent of businesses seeing increased prices for their goods one year ago to 69 percent seeing slight or significant price increases this year,” Nesiba said. “This answer is also higher than those responding in the third quarter of 2021 when 64 percent expected slight or significant price increases. So price expectations are up both from a year ago and from last quarter. The survey does not provide a way to quantify the magnitude of that increase. What is clear is that more businesses are reporting higher prices for the goods they sell.”

This perception of rising inflation is consistent with national data, he added. Over the last 12 months, the consumer price index for all urban consumers rose 6.8 percent in nonseasonally adjusted terms.

“As anyone who has looked at their utility bill knows, energy costs have risen by one-third in the last year and have contributed significantly to the overall increase in inflation,” Nesiba said.

Hiring and expected hiring

Despite what many have reported as a struggle to hire, CEOs are still finding people.

During the final quarter of 2021, almost two-thirds of employers — 64 percent — experienced slight to significant increases in hiring. That’s up 10 percentage points over the 54 percent response in the final quarter of 2020 and above the 56 percent response there months ago.

The CEOs also expect to keep hiring as 2022 begins. Of those reporting, 39 percent expect above-average hiring activity in the first quarter. This is above last year’s 28 percent and last quarter’s 36 percent. In total, 87 percent of respondents expect average to above-average hiring. One year ago, it was 81 percent.

“We believe 2022 will be a strong year for growth, but given the restricted labor supply, the uncertainty of the supply chain and inflationary pressures, many manufacturers may not reach their full potential,” Mundt said.

The strong hiring environment and higher price inflations have been seen in surveys from the Minneapolis Fed as well, Wirtz said.

Capital investment and future planned capital expenditures

Eighty-six percent of firms in the fourth quarter of 2021 reported slight or significant increases in capital investment. This is up from 73 percent in the final quarter of 2020. Those reporting a significant increase doubled from 19 percent to 38 percent in the past 12 months.

Expectations for future capital expenditures remain high. Most firms — 55 percent — expect average capital expenditures and 32 percent expect above-average expenditures.

“So fully 86 percent expect average or above-average investment in the first quarter of 2022,” Nesiba said. “This is down only slightly from 89 percent one year ago.”

While some of the “modest wiggles” in sentiment throughout the second, third and fourth quarters could be “statistical noise,” there have been “consistent changes of reactions in consumer behavior when new (COVID-19) infection rates surge,” Wirtz said, adding the fourth quarter bump in sentiment could have come as the delta variant was fading.

“As such, it will be interesting to see what impact an expected infection surge from the omicron variant — only now coming into view — might have on firm activity and related CEO confidence.”

Rating business climates 

For now, CEOs appear to be feeling as well as they ever have about the Sioux Falls business climate, with 96 percent rating it good or excellent — up from 92 percent a year ago and 90 percent in the prior quarter.

Sentiment about the national economy improved too, with 62 percent rating the U.S. business climate good or excellent, up from 25 percent a year ago and 57 percent three months ago.

“There is a clear perception that both the Sioux Falls and U.S. economy have improved over the last quarter and the last year,” Nesiba said. “Business conditions in Sioux Falls are viewed as better than the rest of the country. However, the perception is that our nation and our city are both better off than they were a year ago and better than last quarter.”

On Dec. 15, U.S. GDP growth was revised up by the Conference Board to a 6.5 percent annualized rate in the fourth quarter of 2021 compared with 2.1 percent in the third quarter. It expects annual growth for 2021 to come in at 5.6 percent on a year-over-year basis. For 2022, it forecasts a slowing to 3.5 percent annual growth.

“This national growth forecast seems somewhat muted compared to the general sense of optimism in this survey,” Nesiba said. “Sioux Falls had a tremendous year in 2021. Perhaps 2022 will be even better? That seems impossible to imagine. However, the sentiments reflected here suggest business leaders expect strong business actively, capital investment and hiring during the first quarter of 2022.”

Sioux Falls Development Foundation resources

Do you have further information to share about conditions at your business? Or are you looking to connect to additional resources to support your growth? The Sioux Falls Development Foundation can assist you in the following areas:

Workforce development: The Development Foundation offers programs and initiatives to help you attract, retain and develop your workforce. Contact Denise Guzzetta, vice president of talent and workforce development, at 605-274-0475 or [email protected].

 Business growth and expansion: Whether your business is planning an expansion in the next five years or facing risk factors impacting growth, the Development Foundation can help by discussing existing building space, available land, potential local and state incentives and other resources. Contact Mike Gray, director of business expansion and retention, at 605-274-0471 or [email protected].