The economy is still humming going by readings from the Xero Small Business Insights employment gauge.

Employment rose up 1.3% in March following a 2.9% lift in February. That’s typical for this time of year so we need to be coy reading too much into a normal seasonal lift.

What’s more interesting has been the steady nature of the growth in employment, which on an annual basis continues to show strong growth. Annual growth has been tracking within an 8-10% rate for all of the past year.

Growth in job ads has been strong, but not that strong. Small businesses appear to be using alternate tactics to find their staff as opposed to traditional advertising (which is largely online so not so traditional!).

Headline employment growth across the broader economy has also been solid though 3.1% annual growth in the official Household Labour Force Survey figures is a long way below the growth being shown by Xero’s Small Business Insights. On the face of it, small business appear to be doing a lot of the heavy-lifting driving overall employment growth.

A couple of surveys report confidence towards the New Zealand economy as being weak. Uncertainty over government policy is being blamed. Firms can hunker down and wrap themselves in cotton wool when uncertainty rises. Surveys also tell us that the biggest problem facing small firms is finding skilled staff.

Xero’s Small Business Insights show two things.

Firstly, small businesses are going about their business, despite weak confidence readings. You don’t take on staff unless you have confidence in your ability to make it work for both parties, the employee and the employer.  

Small businesses are showing confidence in the outlook for their own business by continuing to employ. Thankfully, headline confidence surveys are a poor barometer of economic trends.  What firms do is more relevant and taking on an employee is a big sign of underlying confidence.  

Second, small firms are still managing to find the employees. This is where the combination of strong migration (it’s still running at 68,000) and strong labour force participation (attracting people into the workforce) is critical in terms of an available pool of employees.  Even then it’s not easy for small businesses. You need people with the right skills.   

Some may say employment growth is simply being driven by growth in the number of small business enterprises. That’s not the case. Xero’s Small Business Insights shows strong growth in employment per organisation that  has been growing at 7.5-10%.

Such strong growth opens up some key questions that Xero’s Small Business Insights can help shed light on over time. In what sectors or parts of the economy is it occurring? Why are small business out-employing larger counterparts?

The challenge for firms is to ensure this growth continues such that small businesses transition to medium-sized businesses. This is where policymakers need to be focused too, given the strength being seen. Bad policy can constrain small businesses growth prospects.  Good policy can make it all the more easier for small businesses to step-up.    

This article, including the insights and analysis contained within it, was prepared by Economist, Cameron Bagrie with the support of Xero through Xero Small Business Insights data. For the purpose of informing and developing policies to promote small business in New Zealand. It contains general information only and should not be taken as taxation, financial, investment or legal advice. Xero recommends that readers always obtain specific and detailed professional advice about any business decisions.

Download the Xero Small Business Insights summary here

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