Governor’s economic advisers caution against optimism in 2024

Members of a state economic advisory group expressed skepticism Wednesday about positive economic forecasting, citing high interest rates on debt coupled with a $1.7 trillion federal budget deficit.

The Governor’s Council of Economic Advisors includes economists and businesspeople from around the state. The council reviews and critiques the Bureau of Finance and Management’s economic forecasts and methodology.

During a Zoom meeting, State Economist Derek Johnson presented an economic forecast, using data from S&P Global Market Intelligence. The forecast projects 1.6% growth in the national gross domestic product — the total value of goods and services produced — in 2024. It also projects U.S. personal incomes rising 5%, an unemployment rate of 3.8%, and 2.4% inflation.

“Generally speaking, the outlook is a little bit more optimistic for 2024 than it had been this summer,” Johnson said.

Avalon Capital Group’s John Hemmingstad, a council member from Elk Point, responded by saying the data is constantly changing, “and it’s changed a lot in the last three weeks.” 

“You probably need to be looking at your watch, it’s changing so much,” he said. “These forecasts have been off all year.”

Hemmingstad said his investment firm is preparing for the possibility of economic contraction.  

“We’re concerned, and we’re positioning our portfolios that way,” He said. “We’re building cash, we’re positioning for distressed real estate. We’re hoping it doesn’t happen.” 

Advisers highlighted a U.S. House in disarray, China potentially invading Taiwan and the impacts that would have on agricultural exports, and the U.S. budget deficit jumping from $1.4 trillion to $1.7 trillion for fiscal year 2023. At the same time, interest costs on the federal debt rose 23% to $879 billion, a record.

A local snapshot

Johnson also shared a forecast for the close of 2023. The presentation projected South Dakota ending the year with an unemployment rate of 2% and 2.5% GDP growth.

“Nearly four job openings for every unemployed person right now,” Johnson said. 

Adviser Doug Sharp of Watertown, who runs a car dealership, said the regional economy is strong, but finding people to work is a problem. 

“We’ve got a lot of job openings,” he said.

Dan Newell, president of McGowan Capital Group in Sioux Falls, said the state’s biggest city keeps growing, but “it’s slowing down a bit.” He said Sioux Falls’ biggest problem is the same as Watertown’s.

“Even finding bodies is hard,” he said, let alone people with qualifications. “Trying to keep our talent in the state, rather than going elsewhere, is the continual challenge we’ll all have.” 

To help with that problem, “We ought to be looking a little more at legal immigration, and I’ll just leave it at that,” said Joel Rosenthal, manager at Central Plains Tractor Parts in Sioux Falls.

Carla Gatzke, a human resources executive for the digital-display manufacturer Daktronics, said Brookings is growing and making investments in infrastructure. She said the community is making efforts to improve child care, because the city needs an estimated 900 more child care openings.

Jim Terwilliger is the commissioner of the state Bureau of Finance and Management. He called this a critical time of the year for gathering the council’s perspectives, “so we can work all of those recommendations and outlooks into the economic and revenue forecast.” 

“Here in the next few weeks, we’ll have to make recommendations to the governor and the governor’s team,” Terwilliger said.

Gov. Kristi Noem will present her budget address and proposed 2025 fiscal year budget to the Legislature on Dec. 5.