Inflation Continues to Erode Earnings

Workers in the private sector saw their average hourly earnings fall by $0.75 from December 2021 to December 2022 when controlling for inflation, according to recently released data from the Bureau of Labor Statistics (Current Employment Statistics survey). While nominal earnings increased by about one dollar on average, the effect of inflation more than cancelled out the gains, leading to a 2.6% decrease over the year. Average hourly earnings stood at $28.07 (adjusted to November 2022 dollars) in December 2022, lower than both the 2020 and 2021 December averages. The average value increased only 1.4% from December of 2018. Across the entire US, real average hourly earnings decreased by about $0.50.

The changes in earnings varied greatly across sectors. Taken as a group, goods-producing sectors saw a slight increase to $28.43, while service sectors lost more than a dollar in sliding to $27.97. In the U.S., both groupings fell. Mining/logging/construction increased about one dollar, more than recovering from a decline in 2021, and transportation/trade/utilities gained about half that amount. Hourly manufacturing hourly earnings increased slightly.

Workers in professional and business services experienced a double dose of decline with average nominal earnings dropping by a dollar in addition to the loss of purchasing power due to inflation. The 2022 real average earnings were exceeded in every other year back to and including 2013. Health/education services had flat nominal earnings which led to real average hourly earnings declining by almost two dollars. Leisure/hospitality, while still having the lowest average hourly earnings by far, remained steady from December 2021 to December 2022. The sector was most likely helped by the significant minimum wage increase in 2020, one which will be even larger in 2023.
Both of South Dakota’s metropolitan areas experienced a decline in average hourly earnings. The Sioux Falls average fell forty cents to $28.92. Rapid City fell more than eighty cents to $27.70, roughly the same level as 2018 and 2019. Sectoral detail is not provided for the metropolitan areas in the monthly survey.

Income Summary and Forecast

Real income growth in Q3 2022 was similar to that of the second quarter, although the performance by sector changed significantly. Real personal income declined by 1.4% annualized rate, a slight improvement over the 2.0% decline reported by the updated Q2 data. Given continuing strong population growth, per capita income declined by 2.6%, again slightly better than the second quarter. The decline corresponds to a third-quarter per capita income of just under $67,000 (in November 2022 dollars), more than $400 less than the second quarter. The state remained above the national per capita income of $66,183. Real U.S. personal income continued to decline in the third quarter of 2022, but the decline was much smaller than the second quarter and less than the decline in South Dakota. South Dakota ranked 38th in state personal income growth from the second to third quarters and fell below the Plains Region growth rate by less than one percentage point.

The decline in earnings (0.8%) was lower than personal income, while transfer payments declined by more than five percent. Updated second quarter numbers revealed that earnings had actually declined in that period at a rate slightly above the third quarter loss. Real nonfarm earnings grew very slightly, which was a notable improvement over the 7.8% loss in the second quarter. However, farm earnings declined about nine percent following the rapid growth of the first and second quarters. Total, farm, and nonfarm earnings all grew less or declined more than the comparable national numbers.

South Dakota Real Personal Income Growth Forecast

Quarterly Growth Rates

The largest nonfarm sectors all improved their performance from the second quarter of 2022. Construction, which had declined more than seven percent in the second quarter, rebounded with a gain of 2.6%. Manufacturing continued its rebound from a 15.4% decline in the first quarter to achieve a slight gain in the third quarter. Retail trade, which had declined by more than ten percent in the second quarter, declined only slightly in the third quarter. Finance and insurance sustained a loss of 5.4% in the third quarter, but this was less than half the decline in the second quarter. Healthcare rebounded from a loss of more than ten percent in the first quarter and a slight loss in the second quarter to post a gain of 3.1% in the third quarter.

Forecasts for personal income through the end of 2023 indicate a projected decline in real personal income in South Dakota of 4.1% in 2022 (annual average compared to 2021 annual average) to be followed by a gain of one percent in 2023. Assuming a continued increase in population of close to one percent per year, per capita income is expected to round out 2022 at an annual loss of about five percent compared to 2021. Per capita income is anticipated to rise a very modest 0.2% in 2023. While not an encouraging growth rate, both the personal income and per capita income growth projections slightly exceed those for the U.S. as a whole. The 2023 per capita income forecast represents a decline from the 2021 and 2022 values which were boosted by the pandemic stimulus payments, but it does exceed the 2019 per capita income by about five percent.