2023 Q1 Dakota Outlook
As the first quarter of 2023 wraps up, we can look back at 2022 to see how the year ended and look forward to 2023. In some ways, 2022 ended as expected, but economics, contrary to popular opinion, is never dull. The latest data, which reported on Q4 2022, served up a few surprises for South Dakota and the nation.
From the macro perspective, we saw a national economy that rebounded in the second half of 2022. The US started the year with two quarters of negative real GDP growth, which led some commentators and pundits to start clamoring about recession. The labor market, on the other hand, showed no signs of recession. By the end of the year, both output and employment had fallen into sync, and the US economy demonstrated its resilience with 2.1% annual growth in real GDP and 4.2% growth in year-over-year employment. South Dakota did not close the year in the same manner, though, and it finished the year with only 0.5% real growth in state GDP.
Output and employment are only part of the picture, though, and this issue shows that inflation continues to erode incomes and stress budgets. Inflation-adjusted incomes fell through the first three quarters of 2022 and are forecasted to end the year between four and six percent lower than the previous year. Not all workers have been equally affected by high inflation and slow-growing incomes, though, and this issue of the Dakota Outlook also shows that earnings in the construction and manufacturing sectors outperformed. On the other hand, earnings in the farm and retail sectors, among others, fell behind. This issue also looks at inflation-adjusted income trends within the state and reports on earnings trends in the Sioux Falls and Rapid City metro areas compared to the state as a whole.
Perhaps the most talked about economic indicators in South Dakota over the past year have revolved around housing. This issue of the Dakota Outlook reports on significant trend reversals that took place in the fourth quarter of 2022. As we showed in our last issue, the national and state housing markets started to diverge in the first half of 2022. Home prices, new listings, and building permit activity were flashing red at the national level in early 2022. South Dakota’s market, in contrast, kept pushing higher until the fourth quarter. The latest data hint at an abrupt slowdown in the activity of multiple indicators, aside from listing prices which continue to rise. Winter storms likely helped depress the housing market, but the data also show a 45.6% drop in building permits during the fourth quarter.
We wrap up this issue of the Dakota Outlook with our review of labor market conditions. In this issue, we are improving our reporting of employment growth and unemployment rates to better account for seasonal variations. We also share an important data revision from the Bureau of Labor Statistics that reveals South Dakota’s unemployment rate over the last two years was even lower than expected. The new data imply that the state’s labor market is even tighter than was initially thought and that hiring activity in the labor market is increasingly driven by job switching rather than new entrants to the employment pool.