South Dakota’s economy is slowly beginning to recover from the COVID-19 recession, and there are actually many reasons for businesses to be excited for the future. That was the message shared by panelists who participated in a virtual business luncheon hosted by the Vermillion Chamber & Development Company last week.
The event featured speakers Jamie Wood, district director for the Small Business Administration in South Dakota; Adam Molseed, business development representative from the SD Governor’s Office of Economic Development; and Dr. Kathryn Birkeland, chair of the Economics Department at USD with VCDC Executive Director Nate Welch acting as host.
Though the event was held virtually with participants logging in to watch on Facebook or Channel 3, it was still a very successful event, said Welch.
“It would have been great to gather together in person to enjoy a meal together,” he said at the start of the hour-long talk. “But, thanks to technology, we can still have a meaningful discussion.”
The theme of the chat was how the COVID-19 pandemic has affected the economy and businesses in South Dakota.
Wood, from the Small Business Administration, started the discussion by giving an overview of how her organization has responded to the pandemic.
One major response of the Small Business Administration was a special loan program (Paycheck Protection Program or PPP) that began on April 3. In South Dakota to date, 23,494 PPP loans have been granted for a total of $1.7 billion going to businesses in South Dakota through the program, which provided emergency money to cover payroll, utilities, rent, and other expenses. The loan part of that program has now ended, but the forgiveness portion is underway, so businesses that did receive loans through the program should start applying to have the debt forgiven, she said.
One of the very unique parts of the program was the speed at which it was put into place and also the fact that the program was modified as it unfolded in response to feedback from small businesses who were receiving the money.
“It wasn’t easy [to get the program going so quickly], but it sure was worth it!” said Wood. “Thanks to the program, a lot of money went back into the South Dakota economy when it was needed.”
Another loan program now being used by the Small Business Administration to offer COVID-19 relief to businesses is the EIDL (Emergency Injury Disaster Loan). This program has existed for some time and is used to respond to natural disasters. In South Dakota in 2019, for example, the program was put into action five times in response to severe weather events.
“COVID-19 is considered a natural disaster,” said Wood. “And any businesses that want can still apply for this loan.”
Since the pandemic hit, the EIDL has issued 7,472 loans in South Dakota totaling $449,259.393, said Wood.
The Governor’s Office of Economic Development (GOED) has been scrambling to respond to the pandemic as well, said Molseed during his portion of the talk.
“In our office, we hit the ground running in 2020,” he said. “When we started the year, there were 9 of us working in the office, crisscrossing the state, hitting up lots of conferences outside the state, seeing lots of businesses preparing for expansion, then things came to a screeching halt and the world got thrown upside down and shook around a bit. COVID-19 happened.”
Like everyone else, Molseed’ s office had to quickly pivot to figure out their new role in the pandemic and how they could best help the South Dakota economy. Working with Gov. Kristi Noem, GOED quickly distributed $10 million to South Dakota businesses through the Small Business Relief Fund. They connected with businesses across the state and worked with them to get through the initial start of the crisis.
“Where we are today is that we’ve found that there were a lot of businesses in South Dakota that were able to pivot and change their means and methods in response to the crisis,” he said. “Small businesses deserve a pat on the back because many of them were able to pick themselves up and re-configure things and get going.”
Today, GOED is beginning to see projects moving forward again.
“We’ve got a lot of great projects in the hopper,” Molseed said. “We are getting lots of information from state selectors across the United States and lots of requests for information from smaller to larger companies that are looking to possibly locate in South Dakota.”
Molseed also mentioned the $400 million Gov. Noem recently pledged to businesses in South Dakota.
“We don’t have all the details yet about that, but that will be another boost coming to the economy,” he said.
Molseed’s office is currently running business recruitment advertisements in Minnesota. Their targeted industries are cyber security, biosciences, manufacturing, value-added agriculture, precision agriculture, and production agriculture, he said.
“Things are going very well right now,” said Molseed. “We are seeing a lot of activity and interest and I think there is a lot of hope for the future.”
Welch has seen a similar phenomenon happening in the Vermillion area, he said.
For the latter half of 2019, there wasn’t much economic interest or activity in Vermillion, he admits.
“Then, interest and activity started to pick up right before the pandemic hit,” Welch said. “And it has continued to pick up since then.”
Dr. Birkeland, chair of the Economics Department in the Beacom School of Business at USD, shared that the economy is indeed in a recession, but it’s a recession like no other.
“If you’re wondering if this is a recession, it is,” she said. “But this recession has moved much faster than previous ones.”
One bright spot in this COVID-19-enduced recession is that the fiscal response by the government has been bigger and much faster than usual. Often, fiscal response does not occur until the economy is in recovery. Often, that help comes in the form of tax cuts that stimulate people to begin spending more money again. This time around, a lot of the fiscal response has been in direct money to businesses, or a lot more help to the supply side of the economy equation than usually occurs.
Today’s economy is experiencing both demand and supply shock. How businesses are operating is changing, and probably in permanent ways, Birkeland said.
Such massive changes to how businesses function don’t happen with every recession. The supply side of the economy has not seen so many massive changes in how businesses can operate since OSHA was formed, said Birkeland.
Another unique feature of this recession is that it is being felt differently across the workforce and economy. Some people have not been affected much at all. Others are hurting in dramatic ways. Birkeland believes that the recession will last for another 18 to 24 months.
“But when I say that, remember that this recession isn’t being felt the same by everyone,” she said. “We know that there are some businesses that are booming and we know there are some households that have not lost income. Some households aren’t seeing a recession at all, but other households are seeing a very deep, terrible recession.”
Data since March shows that there has been an increase in the number of households being late on their rent and having trouble getting food. Unemployment numbers in South Dakota also show how the recession has affected people. Before COVID-19, South Dakota had an unemployment rate of about 4,000 unemployed. This jumped to 24,000 after the pandemic hit. The rate has started to slowly decline from there.
“It is slowly falling,” said Birkeland. “It’s going to take a while. I think the unemployment rate is going to be higher for a long time. It’s probably not going to go down to our normal 2 to 3 percent for quite a few more months.”
The COVID-19 recession is changing how people spend money. It’s also changing how and where people work. Although it’s hard to predict exactly, Birkeland says she believes this COVID-19 recession will result in permanent changes to consumer preferences and to how work is done. This will probably affect business expansion. For example, she said, the VCDC and GOED may need to think about recruiting citizens, rather than businesses, to an area as our world moves toward a more virtual state.
The federal government has also indicated that it will not be raising interest rates for the foreseeable future. This means it may actually be a good time for businesses to invest and expand, said Birkeland.
“I never thought I’d say you should increase your investment in a recession, but this is a different type of recession,” she said.