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Growth in Australian small business sales slowed in the June quarter, according to new Xero data. Annual sales growth eased to 6.5% from 7.9% in the previous quarter.
The figures point to a loss of momentum after a stronger start to the year. Monthly growth fell from 10.7% in April to 4.0% in May and 4.8% in June. The June quarter result was also below the series' historical average of 7.9%.
Xero's small business dataset suggests the most pressure was in consumer-facing sectors, as higher borrowing costs and fuel prices squeezed household budgets. Hospitality recorded annual sales growth of 2.1%, retail 3.4%, and arts and recreation 3.5%.
By contrast, resource-linked and infrastructure-related sectors remained stronger. Mining led industry growth at 14.0%, followed by utilities at 13.1% and construction at 10.8%.
Economist Louise Southall said the broader backdrop was weighing on the sector. "After a strong start to the year, pressure started to show in the small business economy in the June quarter. Consecutive interest rate rises and elevated fuel prices have taken the heat out of the economy. Growth is still positive, but those macroeconomic pressures are now weighing on both consumer spending and business confidence."
The gap between sectors widened as spending patterns shifted. Industries tied to discretionary purchases slowed more sharply between the March and June quarters than those supported by commodity activity and construction demand.
"We're seeing a two-speed economy. Businesses exposed to discretionary consumer spending recorded the sharpest slowdowns in sales growth between the March and June quarters, as tighter household budgets impact small business sales. Mining, utilities and construction are far less impacted, with continued outperformance likely driven by price impacts alongside genuine demand," Southall said.
Hiring slows
Employment growth also softened during the quarter, pointing to more caution among smaller employers. Jobs growth slowed to 3.0% year on year from 3.3% in the first quarter, while June produced the weakest monthly employment reading of the year at 2.0%.
Wage growth remained subdued, with wages rising 2.4% year on year in the June quarter, down from 2.7% in the prior quarter.
Southall said the employment figures suggested businesses were becoming more selective about expansion. "Hiring is often one of the first decisions small business owners delay when uncertainty rises. Jobs are still growing, but the softer June quarter result suggests businesses are thinking carefully before adding to headcount."
Regional picture
Across the states and territories, the Northern Territory recorded the strongest annual sales growth at 8.4%. Queensland followed at 8.2%, while the Australian Capital Territory posted the slowest growth at 3.4%.
The inclusion of the Northern Territory in the data for the first time adds a new point of comparison in the regional breakdown. Queensland's result was supported by continued strength in construction and mining, two of the quarter's best-performing industries.
Payment times improved during the period, in line with typical end-of-financial-year patterns. Small businesses waited an average of 22.9 days to be paid, while late payments improved to 6.0 days.
Easing payment delays may offer some support to cash flow, even as sales growth moderates and hiring slows. Even so, the quarter's underlying pattern was one of broad deceleration rather than contraction, with most indicators still positive but weaker than earlier in the year.
Global comparison
Australia's slowdown also mirrored trends in several other developed markets tracked by Xero. New Zealand recorded annual sales growth of 8.6% in the June quarter, while the UK posted 3.6% and the US 4.0%.
Those readings suggest the moderation is not unique to Australia, with tighter financial conditions and geopolitical uncertainty weighing more broadly on business activity. In Australia, however, the split between sectors exposed to discretionary spending and those linked to mining and construction stood out clearly in the quarter's data.
Southall said the second half of the year looked more uncertain for smaller firms.
"Looking ahead, wider economic forecasts line up with what we're seeing: ongoing global uncertainty and the situation in the Middle East are likely to keep weighing on small business sales and hiring for the rest of the year. For small business owners, it's more important than ever that they stay close to their numbers."