The Labor Force Dilemma: South Dakota’s Shifting Economic Landscape
South Dakota’s labor force participation rate fell to 66.3% in September 2026, a decline from 68.2% in September 2025, according to the South Dakota Governor’s Council of Economic Advisors. This dip, while still above the national average of about 62%, highlights a long-term decline that has accelerated since peaking at 73.4% in 2003. The state’s workforce challenges are part of a broader pattern of “headwinds,” as Jim Terwilliger, commissioner of the state Bureau of Finance and Management, acknowledged during a virtual quarterly meeting. “But as we, I think, have shown historically in the past, some of those headwinds will come and go,” Terwilliger said, emphasizing the state’s resilience.
The trend reflects a confluence of factors: an aging population, rising costs, and shifting economic demands. About one-quarter of South Dakota residents are over 60, and a quarter of those over 65 remain in the workforce, according to Bill Even, commissioner of the Governor’s Office of Economic Development. “I think this presents a pretty big opportunity for South Dakota to rethink economic development,” Even said, suggesting automation and productivity gains could offset demographic pressures.
Aging Population Threatens South Dakota Growth
The state’s labor force participation rate has fallen since 2003, but the pace quickened in 2026. Derek Johnson, the state economist, noted that South Dakota still has at least three job openings for every unemployed person, with an unemployment rate of 2%. Yet the decline in participation suggests the state may struggle to sustain growth.
The aging population is a key driver. With one-quarter of residents over 60, the state faces a challenge. Even argued that automation could help. “I think this presents a pretty big opportunity for South Dakota to rethink economic development here over the next couple of years, while we still have a little bit of time to get in front of these demographics,” he said.
Federal Aid Helps Farmers Face Rising Costs
While labor market trends dominate headlines, South Dakota’s farmers are also grappling with rising costs. A $8 billion federal assistance package aims to help with high diesel expenses, but experts say it comes as farmers face not only higher diesel prices but also higher fertilizer and equipment prices, plus drought and an uncertain export market. Evert Van der Sluis, an ag economist at South Dakota State University, warned that farm payments could push annual U.S. federal farm payments up to about $55 billion, surpassing the 2020 pandemic-era record of roughly $45 billion. “These are high numbers, in an absolute and relative sense,” Van der Sluis said.
South Dakota farmers received about $1.1 billion in government payments in 2025, down from $1.8 billion in 2020, according to Johnson. The disparity highlights the strain on the sector, exacerbated by drought and export uncertainties.
Rising Costs and Consumer Shifts
Manufacturers in South Dakota are also feeling the pinch. Federal tariff policies, particularly those affecting Canadian imports, have increased costs for local producers. Carla Gatzke, a Brookings council member, noted that “this variability in tariffs, this up and down with Canada, impacts manufacturing,” with metal imports from Canada.
Consumers, too, are adapting. Sioux Falls council member Shawn Pritchett reported that inflation is beginning to hurt consumer spending, with concert ticket sales lagging. “The only consumer sector, I would say, that’s still robust is remote retail sales,” Pritchett said, pointing to a shift toward online shopping to find “cheaper prices, and obviously, for convenience.”
The tourism sector has been hit hard, particularly in the Black Hills. Visitations to Mount Rushmore and Badlands National Park declined, with visits from Canada down about 35%. Caleb Arceneaux, a Rapid City council member, linked the drop to energy prices and a “very soft” Sturgis Motorcycle Rally. He added that the National Park Service lost 20% to 25% of its full-time staff in 2025 due to federal cuts, which is creating challenges.
The Fiscal Picture: Mixed Signals
Despite these challenges, South Dakota’s state government reported a slight surplus in fiscal-year general fund revenue through September 2026. General fund revenue reached $704 million, about $350,000 above the state’s forecast, according to Johnson.
The mixed fiscal outlook reflects the state’s dual reality: a resilient economy with underlying vulnerabilities. While some sectors, like manufacturing and retail, show signs of adaptation, others—particularly agriculture and tourism—face headwinds.
The Road Ahead: Managing Uncertainty
South Dakota’s economic future hinges on its ability to balance short-term stability with long-term planning. The state’s leaders face a task: addressing immediate pressures like rising costs and labor shortages while preparing for demographic shifts.
The coming years will test the state’s adaptability. With federal support for farmers and automation initiatives, South Dakota has tools to handle these challenges.
For now, the state remains a case study in resilience—a place where economic headwinds are met with caution and hope.
