In another sign of confusion over how the South Dakota economy is doing, amidst concerns about low wages and the tariff insult to an already injured farm economy, Governor Dennis Daugaard says South Dakota posted the third-best rate of GDP growth in the nation at the top of this year:
The United States Bureau of Economic Analysis (BEA) released its estimated gross domestic product (GDP) by state for the first quarter of 2018. The estimates show South Dakota has the third highest growth rate in the nation, trailing only Washington and Utah, respectively. South Dakota grew by 3.1 percent.
“South Dakota’s annual GDP is now estimated to be in excess of $51 billion,” said Gov. Dennis Daugaard. “We’re enthused about the first quarter results and hopeful the growth will continue throughout 2018.”
According to the BEA report, strong showings from South Dakota’s production agriculture, finance/insurance and manufacturing industries helped propel the state’s 3.1 percent growth during the period [Office of the Governor, press release, 2018.08.10].
According to the BEA, while agriculture, forestry, fishing and hunting dropped 4.6% nationwide in the first quarter, that combined sector was the leading contributor to South Dakota’s GDP growth.
Tariffs are growth killers. “Sell short …”
PS … CO was fourth @ 3.0. (No tariffs on pot. We don’t export it. :0))
This growth was all before the tariff problem. When Trump dropped the tariffs and then brought them back two weeks later, that is when the Chinese lost patience with him and the soybean prices dropped twenty percent and hogs dropped about one third from 75 to low fifties. Not possible for that growth to continue now.
It would be great if the trend continues, but we should note the quarter prior (Q4 2017) we had negative growth and were next to last in the nation. Could be some seasonal and/or accounting issues creating the turnaround. Or, happily, it might be genuine old-fashioned economic growth. https://i0.wp.com/staging.dakotafreepress.com/wp-content/uploads/2018/05/Screen-Shot-2018-05-08-at-10.43.38.jpg
I agree with John T. that seasonal or accounting issues could be involved in this peculiar result of going from nearly last to nearly first in GDP growth. One theory that makes sense to me is that the numbers were skewed by farm tax planning in light of the Trump tax cuts. There was an incentive for farmers to “move” income from 2017 to 2018 in order to take advantage of lower rates in 2018 and a pass through deduction of 20% for small businesses. Thus, farmers structured sales of commodities and livestock to occur in 2018 which could abnormally inflate the amount of economic activity in the first quarter of 2018 and deflate the amount of economic activity in the last quarter of 2017.
In the meantime, we should all be having this talk about growth. First place to start would the the retail outlets, including grocery stores. Ask the clerks how many jobs they have, many, if not most, will tell you 2 jobs. Then try the restaurants and ask the same question. For a place that has so much growth, show me the money.
Spot on assessment Jerry. We can “grow” a multitude of jobs, but if people aren’t being paid a living wage and have to work multiple jobs, then we are missing the big picture. I hope that we don’t tank economically, but with the tariffs and other actions taken by this administration, it seems likely. Many of the jobs available, also don’t include healthcare..I see many patients who are busting their butts at 60 hrs a week and are not provided with affordable insurance options.
Darin, interesting hypothesis expanding on John’s proposal that seasonal and/or accounting issues could have created a somewhat false GDP artifact. Let me throw some numbers at that hypothesis from the BEA’s full data:
South Dakota’s 2018 Q1 3.1% growth was great compared to our 2017 Q1 –0.4% shrinkage. Crop prices were low in both periods, right? Would the Trump tax accounting exploit be enough to turn GDP that much?
South Dakota GDP also shrank 0.5% in 2017 Q4, further supporting Darin’s idea that folks put off action until the 2018 tax year. But evidently not enough folks nationwide got that message: US GDP went up 2.7% in 2017 Q4 but only 1.8% in 2018 Q1. Did South Dakotans figure out the tax law better than the rest of the country? Were farmers uniquely positioned compared to other sectors to take advantage of the tax law?
The top ten Q1 gainers were Washington, Utah, SD, Porter’s beloved and bragged-up Colorado, Wyoming, Texas, Iowa, Vermont, Montana, and Arizona. In four of those states, ag made up more than a percentage point of GDP growth: SD, IA, VT, and MT. In WA and TX, ag shrank in Q1.
Nationwide, ag (plus forestry, fishing, and hunting) made up a negative 0.04 percentage points of overall GDP growth. So if Trump tax planning somehow favored agriculture in Q1, either South Dakota farmers took unique advantage of that favor (because we have the best ag financial advisors in the world?) or the rest of the country has larger economic factors that dragged ag down more than that cool tax accounting trick could raise it.
Dudes and dudettes, 2019 is gonna be bad and it could be much worse if we send Comrade Dusty to Washington. Here is what the CBO speaketh of:
WASHINGTON, Aug 13 (Reuters) – U.S. economic growth will probably accelerate this year before slowing in 2019 to well below the Trump administration’s 3 percent target as a fiscal stimulus fades, congressional researchers projected on Monday.”
Governor Daugaard, here is a bucket of cold water, right on your melon.
“But the CBO said it expected growth to slow in the second half as jolts to consumer spending and agricultural exports either fade or reverse. For instance, some second-quarter soybean exports were aimed at beating Chinese tariffs that took effect in July and cut future shipments.” Ouch, tricky stuff, but not tricky enough.
https://www.reuters.com/article/us-usa-economy-growth/u-s-economy-seen-strong-in-2018-to-slow-in-2019-cbo-idUSKBN1KY23R
Cory, to answer some of your questions raised above:
Relatively speaking, crop prices were higher in the 1st quarter of 2018 than in the 4th quarter of 2017. Thus, more commodity inventory than normal was probably carried over into 2018 and sold as prices recovered before the Trump Tariff Slump sent the ag markets reeling down again. So, the market was telling farmers to store grain in the 4Q of 2017 and then telling farmers to sell grain in the 1Q of 2018.
“Would the Trump tax accounting exploit be enough to turn GDP that much,” you asked. In South Dakota where ag is still a huge part of the economy and in Iowa, where ag is a huge part of their economy, I think it would be enough to turn GDP that much. Farmers are uniquely positioned with their ability to use cash accounting methods rather than accrual accounting methods to shift sales, and thus income, from one calendar year to the next.
Other states that are more diversified in their GDP would not show the results that SD and Iowa had. Montana would probably be similarly dependent upon ag. Texas has a much larger and somewhat diverse economy that is much more dependent on the energy sector’s performance over the influence of ag, although ag is big in Texas relative to other states.
A reason why Washington and Texas ag declined in Q1 could be the nature of their primary ag products. Washington and Texas produce a lot of “sell it or smell it” ag products that cannot as easily be carried over past their normal selling dates. South Dakota and Iowa produce a lot of corn, soybeans and other grains that can easily be stored and carried over to the next calendar year.
There’s probably a lot of factors in the nationwide ag numbers that don’t apply to South Dakota ag as I mentioned with the “sell it or smell it” ag products that make up a large portion of other states’ ag GDP. Or maybe my theory is bunk!
https://www.rawstory.com/2018/08/trumps-trade-war-just-forced-us-soy-farmers-take-massive-financial-hit/
There’s trouble in River City.