Xero reveals declining Australian small business performance

The small business platform Xero has released its latest data on the health of Australia's small business economy from the Xero Small Business Index. The Index fell 13 points in October to 115  points, driven by four sub-metrics. 

Sales growth dropped to single digits (+9.1% year-on-year), the lowest reading since February 2021. Jobs growth slowed to 5.5% year-on-year, and wages grew 4.2% year-on-year, above the long-term average but 0.6 %age points less than in September. The time small businesses waited to be paid rose 0.1 days to 23.5 days in October.

Based on aggregated and anonymised transactions from hundreds of thousands of small businesses, the Index is part of the Xero Small Business Insights program. 

"While the October data is softer than previous months, it's important to note that the Index remains above the long term averages," says Will Buckley, Country Manager, Xero Australia. 

"There's no doubt the rising cost of living - driven by inflationary pressures - is challenging Australians across the country with many consumers being forced to re-examine purchases and reduce discretionary spending. This means customers are left with less to spend at local small businesses. Despite this, it is promising to see that small businesses still have the confidence to bring on new employees."

While September saw the largest wage increase since the series began in January 2017 (+4.8% year-on-year), wages slowed to a rise of 4.2% year-on-year in October.

Wage growth was led by hospitality (+5.2% year-on-year) and construction (+4.9% year-on-year). Health care (+3.4% year-on-year) and rental, hiring and real estate (+3.9% year-on-year) saw the slowest growth. 

Across the states, wage rises ranged from 4% year-on-year in Tasmania and West Australia to 4.8% year-on-year in the Australian Capital Territory. 

Jobs growth slowed to 5.5% year-on-year in October, after a double-digit growth of 10.2% year-on-year in September. However, this is still above the long-term average (+3.0% year-on-year) and comes after five consecutive months of accelerating job growth. 

Across all sectors, small businesses are employing more people than they were a year ago, led by arts and recreation (+15.7% year-on-year) and hospitality (+11.4% year-on-year). However, the October results revealed agriculture (+0.3% year-on-year) and construction (+1.7% year-on-year) were the softest sectors. 

The Australian Capital Territory (+10.9% year-on-year) led jobs growth, while the rest of the regions recorded single-digit growth. 

"While the October results reveal a slowdown in jobs growth, these numbers are still well above average. On top of this, it's promising to see arts and recreation and hospitality industries continue to rebound, leading the charge in jobs for the fourth consecutive month," says Louise Southall, Economist, Xero. 

Nominal sales grew 9.1% year-on-year in October, slower than September's 13.5% year-on-year. However, when using the September quarter CPI (7.3% year-on-year) as a proxy for price rises, sales volumes rose by 1.8% year-on-year. 

Similarly to the jobs data, the two strongest industries were arts and recreation (+27.6% year-on-year) and hospitality (+26.4% year-on-year). Conversely, rental, hiring and real estate (+2.1% year-on-year) recorded the smallest rise in sales.

"Small business retailers are heading into what is traditionally a busy trading period. As cost of living pressures continue to restrict consumers, it will be incredibly important for Australians to shop small this festive season and ensure smaller retailers are better positioned as they head into 2023," adds Buckley.  

Across the states, sales growth was underpinned by strong results across the Australian Capital Territory (+15.3% year-on-year), Victoria (+11.2% year-on-year) and Queensland (+11.0% year-on-year), as all three regions recorded double-digit sales growth.

Looking at retail sales across Australia, New Zealand and the United Kingdom, October results show retailers are facing slower sales growth over recent months. 

While Australian retailers have maintained sales growth for the majority of 2022, averaging 10.0 % year-on-year in the first nine months of the year, the October insights reveal single-digit growth (+3.5% year-on-year).

Similarly, New Zealand retail sales growth was in the low single digits in October (+2.7% year-on-year), and the United Kingdom saw retailers experiencing lower sales than they were a year ago (-5.1% year-on-year).