South Dakota Expected to be One of the First States to Recover from Recession

November 15, 2009

The South Dakota Economic Outlook Seminar was held Tuesday, November 10th in Rapid City. According to projections presented by First Interstate Bank's Chief Consulting Economist, Dr. Lee McPheters, the South Dakota economy was one of the last states to feel the effects of the current recession and will be one of the first to return to pre-recession levels of economic activity. But the state will lose jobs this year and next year, and unemployment rates in 2010 may match the previous record highs recorded in 1982.

"We are hearing from Washington D. C. that the recession is over," said Dr. McPheters. "But job losses will continue into 2010 for South Dakota and most other states, and small businesses will still be feeling the effects of the credit crunch for some time to come." McPheters said that national unemployment will likely exceed 10 percent within the next few months as businesses delay hiring while they wait to gauge the strength of the rebound.

McPheters said that the possibility of a "double-dip" recovery should not be ignored. He pointed out that the third quarter increase in Gross Domestic Product (GDP) was driven by the stimulus program and a sustainable recovery will require spending by the private sector, including business and consumers. A "new normal" attitude for consumers will likely include higher rates of saving and less willingness to go into debt. McPheters noted that consumers make up 70 percent of the economy and consumer confidence is still weak from high gas prices, rising unemployment, and falling home values.

South Dakota employment is down by about 8,000 jobs since last year at this time, and McPheters said that job losses for the state will extend into the first half of 2010. But he projects job growth of two percent by 2011. McPheters expects the state will return to pre-recession levels of employment by 2012, a recovery pattern shared by neighboring states of North Dakota, Montana, and Nebraska.

McPheters said that new housing permits this year will be down by as much as 25 percent from levels of last year. However, this year will mark the bottom of the single family housing market for South Dakota, with permits up in 2010. The state's housing markets escaped most of the subprime problems afflicting other sections of the country, he noted.

Although unemployment is expected to rise in 2010, South Dakota's rate will still be several percentage points below the national rate, he said. In the long term, South Dakota can expect sustainable growth during the next expansion period due to its competitive cost structure and affordable housing.

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