Real Incomes and Hourly Earnings on the Rise

South Dakota’s personal income growth was strong in the first quarter of 2023, with its 5.1% inflation-adjusted annualized growth rate more than four times the national growth rate. Part of the rapid growth reflected a recovery in farm earnings, which dipped significantly in the final quarter of 2022 before posting a large gain in the first quarter of 2023. Nonfarm earnings grew at about the same pace as the nation in the first quarter, but South Dakota had modest growth in the final quarter of 2022 while the nation experienced a decline of almost two percent. The strong growth in the first quarter led to an increase in per capita income to $65,870 in 2022 dollars, greater than the values in the prior two quarters but still below the state’s peak in 2021. South Dakota’s per capita personal income remains slightly higher than the U.S. value. Forecasting through the end of 2023 given national real growth of about one percent relative to 2022 personal income, South Dakota income should grow about two percent, with an increase in per capita income of 1.5%.

State and National Nonfarm Earnings Growth

Annualized Quarterly Growth Rates

South Dakota’s economic fluctuations are very much in line with the Plains region. Given the large impact of swings in farm earnings, Plains states have more pronounced swings in overall economic growth. The smaller state economies also have more pronounced swings in nonfarm earnings, as shown in Figure 1, which also illustrates a similar pattern of growth and decline in several Plains states. The combined effect of farm and nonfarm performance leaves South Dakota as one of the fastest-growing states when farm earnings increase and modest growth when farm earnings decline or grow only slowly. South Dakota’s nonfarm earnings growth consistently ranked in the middle third of states between the first quarters of 2022 and 2023.

Income Summary and Forecast

South Dakota’s sectors again varied significantly in their growth rates for the most recently reported quarters (fourth quarter 2022 and first quarter 2023). Finance and insurance continued its downward trend, with a pronounced -11.4% decline in the first quarter of 2023. Healthcare posted small declines in both quarters. Retail trade was up in both quarters, with the strongest growth in the fourth quarter of 2022. Manufacturing experienced a sharp increase in the fourth quarter of 2022 followed by a decrease of 7.1% in the first quarter of 2023. Construction declined slightly at the end of 2022 before growing by 13.8% at the beginning of 2023.

Average Hourly Earnings

Average hourly earnings improved in the first half of 2023 compared to 2022. In addition to nominal hourly earnings increases greater than those in the second half of 2022, a lower inflation rate meant that real earnings were not eroded as badly as they were in 2022. Average hourly earnings for the private sector in South Dakota increased by almost a dollar (from $27.88 to $28.80) between December 2022 and June 2023. After accounting for inflation, the increase was 3.3%, or about fifty cents. The year-over-year inflation-adjusted earnings increase from June 2022 to June 2023 was 2.4%. The year-over-year increase was a full percentage point higher than the national rate, while the December 2022 to June 2023 state rate was almost four times the national average earnings increase.

Average Hourly Earnings

Inflation Adjusted to 2022 Dollars

The Sioux Falls and Rapid City metropolitan areas did not experience the state’s level of growth in average hourly earnings. Sioux Falls grew at a slower rate, similar to the nation, while Rapid City continued the decline seen in 2022. Average hourly earnings in the Rapid City metropolitan area fell in actual dollar amounts from December 2022 to June 2023. The nominal drop was compounded by inflation, leading to a decline of almost four percent (annualized). The year-over-year drop was closer to one percent. As of June 2023, average hourly earnings stood at $33.60 in the US, $29.23 in the Sioux Falls metropolitan area, $28.80 for all of South Dakota, and at $27.57 for Rapid City. The monthly trends for the US, South Dakota, Sioux Falls, and Rapid City are shown in Figure 2.

Average Hourly Earnings by Industry Sector

Inflation Adjusted to 2022 Dollars

Differences in trends were also evident among sectors at the state level. Manufacturing and Transportation, Trade, and Utilities both experienced more than ten percent annualized growth in average hourly earnings between December 2022 and June 2023. Year-over-year growth approached ten percent in Manufacturing and was about six percent in Transportation, Trade, and Utilities. Professional and Business Services and Leisure and Hospitality also saw significant growth, with both experiencing annualized average hourly earnings growth above six percent between December 2022 and June 2023. The Leisure and Hospitality sector year-over-year growth was almost nine percent. Despite the growth, the June 2023 average hourly earnings of $19.13 were still much lower in the sector than in Mining, Logging, and Construction ($30.69), Manufacturing ($28.46), Transportation, Trade, and Utilities ($28.67), Professional and Business Services ($32.29), and Health and Educational Services ($25.18). Health and Educational Services fared worst among the sectors in recent months, with an annualized decline of almost four percent between December 2022 and June 2023. The actual dollar amount of average hourly earnings was lower in June 2023 than it was in June 2022. The monthly trend is shown along with other sectors in Figure 3.