2023 Q2 Dakota Outlook

The economic roller coaster of 2023 continues. There haven’t been too many ups and downs so far in 2023. In fact, we seem to be going up and up and up, the question seems to be whether we reach a peak and then start the long, gentle descent, or if we come crashing down.

The GDP data shows that South Dakota and the nation performed well during the first quarter. South Dakota reversed the trend of three consecutive quarters of negative growth in 2022 and grew by 10.1% annualized in Q1 2023. National GDP, which is reported more quickly than state-level GDP, grew at 2.0% and 2.1% annualized in the first and second quarters. But what could be coming down the pike? Student loan repayment is set to restart in October and we are already seeing increases in credit card and auto loan delinquency rates. Washington seems dead set on a government shutdown, and the economy could be headed for a commercial real-estate tsunami. The growth is here for now, but the level of uncertainty is increasing rapidly.

The macro uncertainty is all the more unwelcome because inflation is moderating, and real incomes are on the rise. South Dakota’s real personal income growth during Q1 2023 was 5.1% compared to only 1.2% nationally. In this issue, we also show that several Midwest states have reported strong growth in nonfarm earnings, even after adjusting for inflation. This quarter, we also report some interesting hourly earnings data for South Dakota, which shows how earnings can differ across location and industry sector.

On the housing front, the current issue of the Dakota Outlook provides more evidence that the housing market is in a deep freeze. Building permit activity was down 37% year-over-year in South Dakota and 15.1% nationally during the second quarter. Listing activity has also dried up as high mortgage rates keep buyers and sellers on the sidelines. It seems prices are immune, though, and median listing prices again rose by 7.3% in South Dakota during the second quarter. This issue also reveals a change in our affordability index from the last issue. Realtor.com revised its entire time series of home prices in June 2023. The revisions affected prices as far back as 2016 and resulted in notable changes to our affordability index scores.

Finally, this issue checks in on a labor market that continues to outperform expectations and complicates the lives of central bankers. South Dakota and the nation continue to enjoy record-low unemployment. South Dakota’s unemployment rate dipped to 1.9% during the second quarter, while the national unemployment rate rose slightly to 3.6% during the same period. More and more people continued to join the workforce as well. Employment growth was 2.8% at the state level and 2.6% for the nation. The continued strong performance of the labor market will likely be a major reason the FED chooses to raise rates again later this year.