Q1 hiring boom spurs small business recovery: Xero
Latest data shows March recorded the largest rise in jobs since October 2022.
Small businesses hired more workers and sales picked up in the first quarter of the year, spurring a recovery from the doldrums of the December quarter, according to Xero.
The Xero Small Business Index averaged 120 points in Q1, up from the 115 points recorded in Q4 when the index suffered the largest monthly decline in December since the pandemic.
“The improvement from the soft December Index reading is a welcome sign that small businesses started 2024 better than they ended 2023,” Xero economist Louise Southall said.
“It's encouraging to see stronger growth in three critical success levers — jobs, wages, and sales — during the first quarter of this year.”
Small business hiring grew by 3.7 per cent, moderately higher than average jobs growth in 2023 and the +3 per cent long-term average for the year-on-year figure.
Jobs growth was particularly strong in March, Xero found, with the +4.3 per cent rise in jobs the largest since October 2022.
This suggested “small businesses are feeling more confident about hiring new staff”, Xero said, with businesses in the healthcare sector (+9.2 per cent) and Western Australia (+5.8 per cent) leading the gains.
By contrast, the hospitality sector (-1.4 per cent) recorded the third consecutive quarter of declining jobs, while ACT (+1.4 per cent) and Tasmania (+1.3 per cent) had the slowest jobs growth in the country.
Sales growth also rebounded “significantly” in the beginning of the year following a period of weak sales in December (+1.9 per cent).
Sales were up 6.1 per cent in January and 6.9 per cent in February, “indicating that conditions are improving for small businesses”, Xero said.
But a drop in March (-2.4 per cent) due to the timing of the Good Friday public holiday period, when most businesses were closed, meant the average for the quarter was 3.5 per cent.
Healthcare (+13.5 per cent) and real estate (+10 per cent) were the best performing sectors in January and February and the only industries to record double-digit growth, Xero said.
The ACT recorded the largest sales growth in the first two months (+8.6 per cent). Tasmania (+4.3 per cent) had the smallest gains.
Wages growth, another key indicator, saw a small increase from the December quarter to +3.2 per cent.
Despite this increase, Xero said it was not enough to lift real wages with the pace of growth still below inflation, and small business pay rises below the national average.
ANZ region managing director Anthony Drury said he was hopeful the momentum shown in Q1 could continue into the year.
“Against challenging economic conditions, it's very pleasing to see a promising start to the year,” he said.
“For small businesses looking at opportunities to grow or streamline operations in 2024, particularly as we head into the busy end-of-financial-year period, we'd encourage them to speak with their advisor, and review their biggest pain points and areas to improve productivity.”
Xero said income tax cuts, anticipated to start on 1 July, could provide a further boost to consumers’ spending capacity to support sales growth in the second half of the year.
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