Xero, the global small business platform, has recently released its latest data on the health of Australia’s small business economy through the Xero Small Business Index, covering the period from February to June 2023.
The index, based on aggregated and anonymized transactions from hundreds of thousands of small businesses, showed an average score of 120 points in the first five months of the year, surpassing the 112 point average of the last three months of 2022. Despite a slowdown in sales, jobs, and wages growth during the first half of 2023, the overall conditions remain better than the long-term average, indicating the resilience of Australian small businesses in the face of recent economic challenges.
Analyzing the key sub-metrics of the Xero Small Business Index, sales growth exhibited a slowdown, reaching 8.0 percent year-on-year in the three months up to June, down from an average of 14.4 percent year-on-year throughout 2022. Similarly, wages growth eased in the June quarter, showing a 3.1 percent year-on-year increase compared to 3.6 percent year-on-year in 2022. The weakest performing sub-metric was jobs growth, rising by only 2.3 percent year-on-year in the June quarter, below the 3.4 percent year-on-year average in 2022. However, payment times remained relatively stable, with an average of 23.0 days during the first five months of 2023.
Louise Southall, Xero Economist, commented on the data, noting that the combination of persistent inflation and high interest rates has impacted household budgets, leaving little room for extra spending in small businesses. However, she highlighted the positive aspect that small businesses are still achieving higher sales of goods and services compared to the previous year, and the easing wage pressures are likely to be welcomed by business owners in the short-term.
The report delved further into specific sectors and regions, revealing that sales growth in the three months to June was led by healthcare and construction, while agriculture experienced the weakest growth. The retail trade sector saw a decline in sales growth, indicating that rising cost of living and interest rate hikes may have influenced consumer spending habits. Moreover, small businesses across all Australian states reported slower average sales growth in the June quarter.
Regarding wages growth, health care had the smallest rise, while hospitality and construction sectors experienced the largest increases during the June quarter. On the other hand, the jobs market remained challenging for small businesses, with industries like real estate and hospitality reporting negative job growth. Western Australia performed strongly in terms of jobs growth, while Tasmania experienced a decline.
Payment times, apart from the exceptional case in June due to the financial year end, remained stable during the first half of the year. However, late payments continue to be a concern and can impact small businesses already facing cash flow stress.
Will Buckley, Country Manager of Xero Australia, acknowledged the difficulties faced by many Australian small businesses in the early part of the year. Nevertheless, he encouraged Australians to support local small businesses in any way they can, whether through shopping locally, promoting them online, or showing support to business owners in their communities.
Overall, the data from Xero’s Small Business Index offers insights into the challenges and successes of Australia’s small business sector, providing valuable information to stakeholders and policymakers aiming to strengthen and support the country’s economic growth.
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