Economic conditions trigger slowdown in sales for small business
Growth across sales, jobs and wages slowed during the first half of 2023 but overall conditions for small business still remain above the long term average, according to data from Xero.
Small business is weathering the downturn despite slower sales and jobs growth, according to the latest data from Xero covering February to June.
“We know itʼs been a difficult start to the year for many Australian small businesses, but itʼs promising to see there are positive signs such as easing wage pressures in the latest data,” said Xero Australia country manager Will Buckley.
Xero economist Louise Southall said the sales and jobs components of the index showed small business was proving resilient to the challenging economic conditions.
“Today’s data highlights that the combination of persistent inflation and ongoing high interest rates are hitting household budgets and not leaving much room for extra spending in small businesses,” she said.
“But on a more positive note, small businesses are still selling more goods and services than they were a year ago, and owners are likely to welcome the news, at least in the short-term, that wage pressures have eased.”
The data showed sales growth slowed in the three months to June but kept ahead of inflation, except for sharp falls in spending on hospitality and retail.
“Sales growth slowed to 8.0 per cent year on year in the June quarter which was slower than the three-month average to March (+11.9 per cent year on year),” the report said.
“However, this figure was still above the long-term 7.8 per cent year-on-year average for this metric. Additionally, small businesses are still selling more goods and services than they were a year ago, as the rise in sales was larger than the rise in the CPI in the June quarter.”
Spending on healthcare (+14.8 per cent) and construction (+10.4 per cent) led the pack while the weakest industry was agriculture (-2.0 per cent). Retail and hospitality showed the strongest declines as consumers cut back on discretionary spending.
“During 2022 household spending was supported, in part, by the accumulation of a large pool of household savings during the pandemic period – thanks to more generous government payments and the inability to leave the house to spend money. This pool of funds appears to be dwindling,” the report said.
“The March quarter GDP data showed that households have largely run down the savings buffers they accumulated during the pandemic, with the household savings rate just 3.7 per cent compared to a peak of 23.6 per cent in June 2020.”
Sales growth slowed in all states but was strongest in Queensland (+10.5 per cent) and weakest in Tasmania (+4.2 per cent).
Wages grew 3.1 per cent year on year, down from 3.9 per cent over the last six months of 2022 and close to the 3 per cent long-term average. However, the picture was mixed depending on sector.
“The cooling in wages growth has not been uniform across industries,” the report said. “Construction (+4.3 per cent) and hospitality (+4.4 per cent) had the largest wage rises in the three months to June and have done so for most of this cycle. Similarly, healthcare (+2.7 per cent) remained the sector with the smallest wage rises in this period.”
Jobs growth was the weakest performing sub-metric, rising 2.3 per cent year on year in the June quarter, below the 3.4 per cent average in 2022.
“During the first half of the year, Australian small businesses continued to find it hard to hire new staff,” the report said. “At an industry level, real estate was the weakest for jobs, falling an average of 1.0 per cent year on year over the three months to June, followed by hospitality (0 per cent) and retail trade (0.4 per cent).”
The data contained an end-of-year blip in June when the index jumped to 158 points on the strength of shorter payment times averaging 19.9 days, well below the February to June figure of 23 days.
“We expect this to be reversed in July and for the metric to return to a more usual level,” the Xero report said.
The Small Business Index is based on aggregated and anonymised transactions from hundreds of thousands of small businesses.
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