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Small businesses continue to struggle

Xero has released its latest data on the health of Australia’s small business economy, covering October through to December 2023.

The Xero Small Business Index (XSBI) averaged 115 points in the December quarter, down 10 points from the September quarter.

A significant shift was seen in December when the Index fell 37 points to 89 points, its lowest level since September 2020 and the first time in a year the Index has dropped below the 100 level. This is the largest single month decline since April 2020, when the economy was essentially closed down by the pandemic.

“Multiple interest rate rises and higher-than-usual inflation are impacting household budgets and we can see a shift in the December data, particularly in the retail sector,” says Xero Economist Louise Southall.

“It’s important to acknowledge that the soft December result happened when retailers and hospitality businesses, in particular, expect to be busy with heightened consumer activity. Looking ahead, conditions are likely to remain challenging as interest rates stay high and inflation is still above the central bank’s target.”

Sales

Sales growth for small businesses continued its slowing trend in the December quarter, according to the XSBI, averaging 1.7 percentage points less than the September result (6.8% year on year). Sales only rose 0.9% year on year in December, the smallest rise in sales since January 2021.

Across the industries, retail (up 1.2% year on year), wholesale trade (down 0.1% year on year) and agriculture (down 4% year on year) were the softest during the December quarter.

Meanwhile, health care (up 13% year on year) and education and training (up 11.1% year on year) recorded strong sales growth.

All states and territories recorded a sharp decline in sales growth in December, with Queensland (up 2.2% year on year) showing the smallest decline in growth (down 1.9 percentage points), and South Australia (down 0.1% year on year) showing the largest decline (down 7.4 percentage points).

Wages

While wages growth remained fairly steady in the December quarter, up slightly from the September quarter result (2.8% year on year), there was a distinct slowdown in December, with wages rising just 2.5% year on year.

This result contrasts the upward trend seen at a national level, with the wage price index (WPI) rising 0.9% in the December quarter and 4.2% in the 12 months to December. Xero says this suggests that small business owners are currently unable to compete with larger businesses on pay increases.

South Australia (up 3.5% year on year ) and Tasmania (up 3.4% year on year) showed the largest wage gains in the December quarter, while the hospitality sector (4% year on year) recorded the largest increase across the industries.

Jobs

The drag on the Index from sales and wages was partially offset by a modest pick-up in jobs growth in the final few months of the year.

Jobs growth (3.5% year on year for the December quarter) was above the pre-Covid average for this series (3% year on year), and showed a moderate increase when compared to the September quarter (2.7% year on year).

The hospitality workforce experienced a fall in jobs in the December quarter (down 1.2% year on year), while health care (9.5% year on year) and education and training (6.6% year on year) had the fastest growing staff levels.

Across the regions, jobs gains were led by Western Australia (6.3% year on year), while Tasmania only managed average jobs gains of 0.2% year on year.

Payment times

Payment times showed little change in Australia over 2023 (excluding June), says Xero, with the three months to December showing the same result as the September quarter.

On average, payments were made 6.3 days late in both the December and September quarters and only slightly longer (6.6 days) in the first half of 2023.

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