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In a world of ever-changing estimates, revised estimates, preliminary actuals and revised actuals, the following is the most recent data available to gauge the national economy's performance during 1988. All economic forecasts currently available for 1989 may need some revision. At this writing, it has just been announced that the Consumer Price Index (CPI) rose 0.6 percent in January which, if annualized, would amount to 7.2 percent for 1989 if January's trend continued throughout the year. That monthly rate is the highest since January of 1987 when inflation shot up 0.7 percent, but slowed significantly during the remainder of the year. The Wholesale Price Index also jumped 1 percent in January which translates into an annual rate of 12.7 percent should January prove to be representative of what 1989 will bring. Those price increases prompted major banks to hike their prime lending rate twice during February and, during the last full week of the month, the Federal Reserve upped the discount rate, that interest rate which banks are charged for short-term loans.

Real Gross National (GNP) grew at an estimated 2.0 percent rate from the 3rd to the 4th quarter of 1988. Growth in that period was the slowest of 1988's four quarters. The average annual rate of real GNP growth for the year just completed was 2.7 percent. the U.S. Department of Commerce estimated that the drought of 1988 shaved three-quarters of a percent off the real GNP growth for the year. A variety of economic pundits have predicted that real GNP growth for 1989 will paralled 1988's growth with GNP increasing at a rate of approximately 2.7 percent. The estimated rates of growth predicted for 1990 vary, but most economists foresee a much slower rate of growth at less than 2 percent. These estimates were released in early February, prior to the increases in the CPI and prime interest rate which occurred near the end of the month.

Inflation for 1988, as measured by the CPI, increased at an average annual rate of 4.2 percent during 1988. Preliminary data for the 4th quarter put it 4.2 percent ahead of the inflation rate for the same period in 1987. for 1988, the rate of increase for the CPI increased somewhat in the 1st quarter, topped out in the 2nd and 3rd quarters and dropped again in the 4th quarter. The current estimates for inflation during 1989 hover at around 4.7 percent. Again, these estimates were made prior to the late February release of January's CPI and the increase in the prime rate.

Total personal income in the U.S. was up 7.6 percent from the 4th quarter of 1987 to the 4th quarter of 1988. Nationally, farm proprietor's income dropped nearly 15 percent (14.8%) from the end of 1987 to the end of 1988, when seasonally adjusted. American's disposable personal income (DPI) increased at an average annual rate of 3.8 percent during 1988. DPI posted strong gains in all periods except the 2nd quarter, when it remained unchanged from the previous quarter. Personal savings as a percent of disposable personal income rose to 4.2 percent during 1988, its highest level since 1986. Personal savings as a percent of DPI are expected to increase slightly in 1989 and 1990.

The nation's unemployment rate dropped slightly from the 3rd to the 4th quarter of 1988. The 5.1 percent unemployment rate for the 4th quarter was the slowest during 1988, and puts the average annual unemployment rate for the year at 5.4 percent. As with the other indications, no wide swings in the unemployment rate were initially predicted for 1989. Total unemployment for the last quarter of 1988 was 2.1 percent above total employment in the same period of 1987. Non-agricultural employment was up 3.2 percent from the 4th quarter of 1987 to the 4th quarter of 1988.

In its latest editin of U.S. Industrial Outlook, the Department of Commerce estimates that the constant dollar value of new construction will decline slightly, with an increase in maintenance and repair expenditures in 1989. Housing starts are expected to decline as are starts for commercial construction. Nationally, employment in the construction industry rose 0.4 percent to a record 5.1 million employees in 1988. Housing starts may be further slowed by the recent increases in interest rates. Homeowners who opted for riskier adjustable rate mortgages in order to get into their first homes or move into better ones will begin to feel the crunch first as interest rates climb. The average 30-year mortgage rose to 10.56 percent compared to 9.84 percent one year ago, after the Federal Reserve and major banks finished hiking the discount and prime rates at the end of February. Since 1979, the rate of home ownership in the 25-29 age bracket dropped from 44 percent to 36 percent. For those in the "thirtysomething" category, the rate slowed from 61 percent to 53 percent.

South Dakota's Economy

On a seasonally adjusted basis, unemployment in South Dakota continued to drop in late 1988, decreasing from 4.3 percent in the 3rd quarter to 3.8 percent in the 4th quarter. For the year, unemployment was its lowest during the second quarter and the average unemployment rate in the state was 3.8 percent, nearly two percentage points below the average national rate. Non-agricultural employment remained unchanged from the 3rd to the 4th quarters of 1988, on a seasonably adjusted basis. Non-agricultural employment increased 1.5 percent from the 4th quarter of 1987 to 1988. Construction employment continued its slight decline from the 3rd to the 4th quarters of 1988. Seasonally adjusted, construction employment at the end of 1988 was less than one percent below that during the same time period one year ago.

Dramatic decreases in farm income continue to pull down the state's level of total personal income. Personal income declined for the second consecutive quarter, down 7.3 percent from the 2nd to the 3rd quarters of 1988, on a seasonally adjusted basis. Personal income for the third quarter of 1988 was 2 percent below that during the same time period in 1987. For the third consecutive quarter, seasonally adjusted farm income continued its dive into the 3rd quarter of 1988. For the first time since 1983, farm income fell into the negative numbers, dropping 110 percent from the 2nd to the 3rd quarters of 1989. Farm income for the first 3 quarters of 1988 is 37 percent below that of the first three quarters of 1987.

Although the increase slowed to 1.1 percent from the 3rd to the 4th quarters of 1988, registrations of new trucks skyrocketed last year. On a seasonally adjusted basis, sales of new trucks during the last quarter of 1988 were 25.8 percent ahead of those during the same time period in 1987. In total, new truck sales in 1988 outpaced 1987 sale by 24 percent. And, while increasing somewhat, sales of new cars took no dramatic turns from 1987 to 1988. Seasonally adjusted, new car increased 3.8 percent from the 3rd to the 4th quarter of 1988, but were 2 percent below sales for the 4th quater of last year. In total, sales of new cars in 1988 increased 2.9 percent over sales in 1987.

In South Dakota, construction employmnet fell approximately 3 percent from 1987 to 1988. And, while the unadjusted dollar amount of new residential construction remained relatively unchanged from 1987 to 1988 (up eight-tenths of one percent), the number of new single family homes reported in 1988 dropped 17 percent from the number reported in 1987. The bulge in the new residential construction market is in the multi-family housing category. The number of dwellings constructed to house 3 to 4 families jumped 83 percent from 1987 to 1988 while the number of dwellings constructed to house 5 or more families increased 22 percent. The unadjusted dollar values of the dwellings in those two categories rose 109 percent and 32 percent, thus keeping the overall value of new housing starts in the state relatively unchanged.

Nancy Palmer is an Administrative Assistant at the Business Research Bureau, The University of South Dakota, Vermillion, South Dakota.
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Title Annotation:South Dakota
Author:Palmer, Nancy
Publication:South Dakota Business Review
Date:Mar 1, 1989
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