Which Industries are Driving Job Growth

Devan Schaefer - September 29, 2024
Which Industries are Driving Job Growth

Over the last decade, South Dakota has demonstrated impressive resilience and steady workforce growth, with the state’s nonfarm workforce reaching 468,200 by July 2024. Specifically, the average annual growth rate between 1991 and 2023 for South Dakota was 1.45%. However, this consistent expansion prompts an examination of sector-specific performances to understand which sectors have thrived and which have lagged.

This article delves into the detailed workforce data of South Dakota, focusing on the variations and trends within different sectors, especially during and after the COVID-19 pandemic. This article aims to provide a comprehensive overview of the state’s labor market dynamics by examining key metrics such as total employment and sectoral employment. This analysis will highlight the sectors driving growth and identify those that may need targeted interventions to ensure balanced and sustained economic development.

South Dakota’s Total Employment

Figure 1 shows a pronounced acceleration in nonfarm employment growth post the COVID-19 pandemic. Between 2021 and 2023, the average growth rate surged to 2.76%, a substantial increase compared to the modest 0.898% growth observed from 2014 to 2019. This robust post-pandemic growth suggests an intense recovery phase, marked by a significant rebound in employment numbers across various sectors. It also indicates potential restructuring and enhancement within the state’s economic landscape.

The sectoral rankings in South Dakota have mainly remained stable since 2014, as illustrated in Figure 2. This stability reflects the enduring strength of several key industries within the state’s economy. However, there is a notable exception in the stagnation of the financial activities sector. This sector has not kept pace with the dynamic growth seen in other areas, falling behind professional and business services and manufacturing, which have experienced substantial expansion over the past decade.

As of July 2024, the top three employment sectors are trade, transportation, and utilities, employing 92,700 individuals. This sector’s prominence is suggestive of South Dakota’s strong logistics and distribution networks and its vibrant retail environment. The government sector, with 82,900 employees, underscores the significant role of public administration and services in the state’s workforce. Education and health services, employing 78,200 people, highlight the critical importance of these fields in supporting the well-being and development of the state’s population.

Conversely, specific sectors are lagging in employment numbers. With only 5,100 employees, the information sector remains one of the smallest, reflecting its challenges in a rapidly evolving digital landscape. The ‘other services’ category, encompassing a variety of miscellaneous service industries, employs 18,100 individuals. This sector’s diverse nature often means it includes smaller businesses and niche services that may not scale as rapidly as larger sectors. Finally, with 27,200 employees, financial activities have not seen the same growth trajectory as sectors like professional and business services or manufacturing. This stagnation may be attributed to various factors, including increased automation, consolidation within the sector, and shifting economic priorities.

Change in South Dakota’s Employment

Figure 3 underscores the significant year-over-year employment changes across sectors, particularly highlighting the sharp declines and subsequent recoveries during the pandemic. This visual representation offers an encompassing view of the volatility experienced in various sectors and the resilience shown in their subsequent rebounds.

A closer examination of these sectors in Figure 4 reveals their recovery trajectories in more detail. During the initial phases of the pandemic, sectors such as leisure and hospitality were among the most brutally hit. With widespread lockdowns and travel restrictions, this sector saw a dramatic drop in employment as businesses such as hotels, restaurants, and entertainment venues faced unprecedented challenges. However, as restrictions eased and vaccination rates increased, there was a notable rebound in employment within this sector. The recovery was driven by pent-up consumer demand, government stimulus measures, and the gradual return to normalcy, resulting in increased activities and job creation.

Similarly, the trade, transportation, and utilities sector experienced significant declines during the pandemic. Supply chain disruptions, reduced consumer spending, and operational challenges led to job losses across various sub-sectors. Yet, this sector also showcased a strong recovery as global trade resumed, e-commerce flourished, and infrastructure investments increased. The robust growth in this sector post-pandemic reflects the adaptability and resilience of businesses that could pivot and meet changing consumer needs and market conditions.

The government sector also faced substantial employment declines during the pandemic, particularly at the state and local levels, as budget constraints and the shift to remote work impacted public sector jobs. However, as economic activity rebounded and fiscal support measures were implemented, employment levels were gradually restored within this sector. The recovery was supported by the critical role of government in managing the public health crisis, providing essential services, and implementing recovery programs.

Panning to the Pandemic

Figure 5 provides an in-depth analysis of sector-specific impacts during the pandemic, shedding light on the differential effects across various sectors. From March to April 2020, South Dakota experienced a significant decline of approximately 42,000 employees, marking a sharp contraction in the workforce. This period was characterized by widespread economic disruption as businesses shuttered temporarily and consumer activity plummeted due to lockdowns and social distancing measures.

The leisure and hospitality sector bore the brunt of these losses, accounting for nearly half of the total employment decline. Despite this shock, the leisure and hospitality sector’s recovery has been notable, demonstrating resilience and adaptability as it navigated the post-pandemic economic landscape. Figure 5 thus highlights not only the immediate impact of the pandemic on South Dakota’s employment landscape but also the remarkable recovery journey across different sectors

Lagging Sectors

Figure 6 examines which sectors in South Dakota are lagging in employment, specifically focusing on the persistent decline in the information and financial activities sectors. This detailed data analysis highlights a consistent downward trend in both areas over the past decade, underscoring significant structural and market challenges.

Growth rates have steadily deteriorated for the information sector, presenting a concerning picture for the industry. In 2015, the sector showed signs of trouble, with a negative growth rate of -2.90%. This decline worsened significantly, hitting a dramatic low of -7.8% in 2020 amidst the height of the pandemic. This sharp decline can be attributed to several factors, including the rapid digitization and automation of information services, which reduced the demand for traditional roles within the sector. Furthermore, the pandemic accelerated the shift towards remote work and digital platforms, further diminishing the need for conventional information services.

Despite a slight recovery of 3.80% in 2022, the sector faces severe challenges. This modest rebound suggests some stabilization, possibly due to the adopting of new technologies and business models. However, the overall trend indicates ongoing structural issues, such as the obsolescence of traditional media and publishing jobs and the consolidation of tech services, which continue to limit job growth. The decline in the information sector reflects broader trends in the economy, where digital transformation is reshaping industries and reducing employment in traditional information services.

Similarly, the financial activities sector has been grappling with a sustained decrease in employment. The sector experienced a sharp drop to -2.27% in 2020. This significant decrease during the pandemic period highlights the sector’s vulnerability to economic shocks and the evolving landscape of financial services. Factors contributing to this decline include increased automation in banking and financial services, regulatory changes, and shifting consumer preferences toward digital and fintech solutions.

However, unlike the information sector, the financial activities sector has not seen any rebound. Furthermore, the sector has seen a persistent negative growth rate since 2015 pointing towards difficulties in the sector. The challenges faced by the financial activities sector may also reflect broader economic pressures, such as market and interest rate volatility, which affect profitability and, consequently, employment. Additionally, the shift towards online banking and financial technology has reduced traditional banking roles, further exacerbating employment declines in this sector.

Conclusion

In summary, South Dakota’s workforce has demonstrated remarkable growth and recovery after the pandemic, reflecting the state’s resilience and adaptability in the face of economic disruptions. The post-pandemic period has been characterized by significant improvements across various sectors, with noticeable rebounds in employment numbers and overall economic activity. This recovery is especially evident in sectors such as leisure and hospitality, trade, transportation, and utilities, as well as government, which have all seen substantial gains as restrictions eased and consumer demand surged.

The leisure and hospitality sector, for instance, has experienced a robust recovery, fueled by pent-up consumer demand and the gradual return of travel and entertainment activities. Similarly, the trade, transportation, and utilities sector has rebounded strongly, reflecting the resurgence in retail and logistics activities as global supply chains stabilized. The government sector has also managed a steady recovery, with the resumption of public services and infrastructure projects contributing to its growth.

Despite these positive trends, the analysis highlights that specific sectors, specifically information and financial activities, continue to lag behind in terms of employment. The information sector has struggled with a persistent decline, reflecting ongoing structural issues and declining demand for traditional information services. This sector’s challenges are worsened by the rapid pace of digital transformation, which has shifted demand away from conventional roles. Similarly, the financial activities sector has faced sustained underperformance, with negative growth rates indicating difficulties related to economic pressures, automation, and evolving consumer preferences in financial services.

Overall, while South Dakota has made significant strides in its workforce recovery, attention to the sectors that continue to struggle will be vital for sustaining economic growth and ensuring a balanced recovery. By addressing these challenges proactively, business leaders and policymakers can contribute to a more inclusive and robust economic future for the state.