Despite some challenges, South Dakota has performed well on many economic fronts even during the COVID-19 pandemic and recession, a regional economist said Wednesday.
Dakota Institute economist Jared McEntaffer talked about “the good, the bad and the future” for the national and state economy. Yankton Thrive sponsored his hour-long presentation at the Elks Lodge.
He discussed South Dakota’s economy, focusing on its strengths and areas for improvement. Additionally, he discussed regional trends, particularly population growth, employment-population ratio and employment growth.
He also discussed housing needs and rising costs – a major challenge – and underlying factors such as supply and demand, driven by interest rates and mortgage costs.
All factors play together in shaping economic development, McEntaffer said.
South Dakota enjoys a strong job market, he said, as the state recorded a 2% unemployment rate in April.
“If you compare South Dakota basically to the surrounding region and nationally, we have (overcome) the pandemic and then the post-pandemic, (and we have done) very well,” he said.
“Our labor markets are stronger than most around us. And that’s a really good thing. “It cannot be stressed enough that the job and wage growth in South Dakota is something we can all be very happy about.”
The downside is that South Dakota is suffering from a housing crisis, McEntaffer said. Home prices have skyrocketed, although the rental market remains in good shape, he added.
“Unfortunately, when we talk about the entire state or home prices, they have become completely decoupled (from the economy). “House prices have skyrocketed in recent years,” he said.
“I don’t think that’s news to anyone. I think the actual degree to which they’ve gone a little crazy will be a surprise. So, it’s bad for us to deal with it. “It is an obstacle and has implications for the performance of the labor market.”
South Dakota seeks to attract and retain workers, especially younger residents, which is greatly affected not only by housing availability but also affordability, he said.
“I don’t see many policy-based responses that can address this price growth. “What we are going to need is basically continued wage growth,” he stated. “And I use the term ‘real’ wage growth above the inflation rate. That is difficult and puts pressure on companies, but we need wage growth.”
The state and communities need to develop rental housing and other affordable alternatives, as single-family homes cannot be developed quickly enough to meet growing demand, McEntaffer said.
The housing market remains interconnected with other factors such as interest rates, wages and infrastructure, he said.
McEntaffer showed graphs illustrating how South Dakota has fared since 2001 compared to neighboring states in terms of population and economic growth.
During that period, South Dakota’s population grew 26% and its Gross Domestic Product (GDP) showed steady growth due to both economic factors and government policies, he said.
By contrast, North Dakota saw massive growth due to its oil boom, but the state also saw a sharp decline when that industry slowed.
In terms of employment-to-population ratio, South Dakota is 67% above the national average, McEntaffer said. The ratio can be affected by factors ranging from a large number of young people to a growth in retirees, along with the labor market participation rate.
The workforce is defined as those over the age of 18 who are not in prison or in the military, he added. The figure measures output in terms of labor productivity and does not include people who stay home and care for children, although this is an important role, he added.
South Dakota weathered the pandemic better than many parts of the country, McEntaffer said. The reasons can range from state government policies to the influx of federal stimulus aid, she said.
However, other states that may have a lower percentage of growth could still see a much larger increase in jobs due to their larger population and economy, he noted.
Turning his attention to the current outlook, McEntaffer highlighted the impact of inflation, especially on the housing market and interest rates. As a result, potential home buyers are finding it difficult to find affordable homes and mortgages. Meanwhile, those with homes rising in value and paying a lower mortgage rate are unwilling to sell right now and enter a more expensive market.
“People just aren’t moving right now,” he said.
The answer? It may require creative solutions, including government policies such as tax increment districts. “It’s a tool in the quiver, but our tax structure is such that there aren’t too many types of incentives,” he said.
In addition, local governments are analyzing the fiscal implications for their revenues and services, he added.
Additionally, the state faces a child care crisis that is not measured in a number of studies that focus on jobs and housing, she said.
The outlook is not all doom and gloom, McEntaffer said.
“If we look at interstate mobility, we’re talking about a 1% increase in South Dakota’s population, or about 10,000 people a year,” he said.
Additionally, South Dakota has diversified its economy and increased many of its services, he said. As a result, the state remains poised for continued growth.
The outlook looks particularly bright for Yankton, which is rich in resources and has taken steps to grow its economy, McEntaffer said.
“Yankton has really positioned itself well for the future,” he said.
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