Xero reveals slowdown in Australian small businesses

The global small business platform Xero has released its latest data on the health of Australia's small business economy from the Xero Small Business Index. Based on aggregated and anonymised transactions from hundreds of thousands of small businesses, the Index is part of the Xero Small Business Insights program. 

The Index fell three points in November to 116  points, driven by a slowdown across three sub-metrics. Sales grew 7.7% year-on-year (y/y), down from 13.1% y/y in October. Jobs growth slowed to 2.5% y/y, while wages grew 4.1% y/y, down from 4.2 %y/y in October. These results were partially offset by a slight improvement in the time to be paid measure, which was 23.3 days in November compared to 23.5 days in October.

"The November data has revealed consecutive months of slowdown across sales, jobs and wages. While these figures may be unsettling for small business owners, it's important to note that the indicators are still demonstrating a growing economy, although at a slower pace. It is in line with the Reserve Bank forecast as it works to control inflation and avoid recession," says Will Buckley, Country Manager, Xero Australia.

"The reduction in wage growth will be a small but welcome relief for small business owners, as they continue to balance a tight labour market with rising costs." 

Jobs growth slowed to 2.5% y/y in November, after three months of solid gains across the industries. 

Arts and recreation saw the most significant increase in jobs (+6.5% y/y), followed by administrative services (+4.9% y/y). Agriculture (-1.1% y/y) was the only industry with a fall in jobs.

"As summer festivals and events kick off around the nation, it's promising to see the arts and recreation sector continue to rebound, leading the charge in jobs for the fifth consecutive month," adds Buckley.

Nominal sales rose 7.7% y/y in November, the third consecutive month of slower sales growth. 

When using the October CPI (+6.9% y/y) as a proxy for prices, the data suggests small businesses are still selling more goods and services than they were a year ago.

Across the industries, sales growth was led by arts and recreation (+15.3% y/y), construction (+12.6% y/y) and education (+12.4% y/y). On the other hand, finance and insurance (-7.5% y/y), retail trade (-1.1% y/y) and rental, hiring and real estate (-0.1% y/y) recorded a decline in sales. 

"Retail trade sales declined for the first time since April 2020, which suggests increased cost of living pressures, including interest rate rises, have started to impact household spending despite the major sales events in November such as Black Friday and Cyber Monday," says Louise Southall, Xero Economist. 

"However, on a global scale, Australia is the only country tracked by the Index that has been able to maintain positive sales volume growth so far during 2022." 

Across the states, sales growth was led by the Australian Capital Territory (+13.8% y/y), with Western Australia (+3.1% y/y) recording the smallest rise. 

November saw a wage rise of 4.1% y/y, continuing a slowing trend following September's record increase of 4.7% y/y. 

"It's promising to see a slowdown in wages this month, which could suggest Australia is avoiding the price-wage spiral the RBA is seeking to avert by increasing interest rates," adds Southall. 

Across the industries, hospitality (+5.2% y/y) and construction (4.8% y/y) recorded the most significant increases in wage growth, with healthcare recording the lowest (+3.3%).  

"It's encouraging to see the Australian economy continuing its resilience in the current economic climate. However, with sales numbers softening, I would encourage any small business that is starting to feel the pinch to speak to an advisor sooner rather than later and come up with a plan to navigate the months ahead," concludes Buckley.