New Xero data reveals Australian small business hiring continues amid sales volatility

Melbourne — 25 July, 2024 — Xero, the global small business platform, today released its latest Xero Small Business Insights (XSBI) update, highlighting contrasting trends for Australian small businesses this quarter. Despite strong jobs growth and improved payment times, sales were volatile, reflecting the complex operating environment for small businesses.

June quarter at a glance:

• Sales growth averaged 3.9% y/y for the June quarter (3.8% y/y for the March quarter)
• Wages growth averaged 2.9% y/y for the June quarter (3.3% y/y for the March quarter)
• Jobs growth averaged 4.5% y/y for the June quarter (3.4% y/y for the March quarter)
• Small businesses waited 21.3 days to be paid in the June quarter (22.5 days to be paid in the March quarter)

Small Business Index shows further improvement

The Xero Small Business Index averaged 142 points in the June quarter, a notable jump from the March quarterly result (121 points). However, this rise was largely driven by an improvement in payment times in June[1], where the Index surged to 162 points. Outside of this outlier result, the April and May average of 132 points is likely more indicative of the current state of small business performance in Australia.

“The continued jobs growth is positive to see; however, the decline in sales in June is something to watch. Softening wages growth suggests small businesses may be managing the jobs and sales mismatch by offering smaller pay rises to employees,” said Louise Southall, Xero Economist.

Jobs growth continues its upward trajectory

Small business hiring remained strong in the three months to June, with June (+5.0% y/y) being the largest rise since October 2022. The ongoing strength in jobs could be due to an eagerness among small businesses to retain staff and avoid risking future skills shortages. There was a noticeable variation in jobs growth across the regions and industries in the June quarter. Public administration (+9.1% y/y) and healthcare (+8.8% y/y), two sectors that are underpinned by public sector spending, led the industry gains, while hospitality continues to show the softest results (-0.5% y/y). Western Australia (+6.9% y/y), alongside South Australia and Queensland (+5.3% y/y), showed the strongest growth across the states and territories, while the smallest rises were seen in Tasmania (+2.0% y/y) and the Australian Capital Territory (+1.3% y.y).

Sales growth shows first decline since early 2021

Sales performance in the June quarter was similar to the March quarter; however, the monthly breakdown reveals a more volatile three months. Sales saw significant growth in April (+12.8% y/y) due to the early timing of Easter, followed by a modest increase in May (+2.5% y/y), and then a decline in June (-3.5% y/y), the first since January 2021 (aside from the Easter impacted March 2023 result). This decline was widespread, with only healthcare (+4.4% y/y), public administration (+2.9% y/y)and education and training (+0.9% y/y) showing positive growth in June. All states and territories experienced a sales decline in June.

Wages growth slows slightly

Wages growth averaged 2.9% y/y in the June quarter, slightly below the long-term average of 3.0% y/y. This indicates that real wages for small business employees continue to lag behind inflation (around 4.0% y/y), and that small businesses are unable to keep pace with wage rises offered by larger businesses. Hospitality businesses continue to offer the largest wage increases (+3.6% y/y) across the sectors, while South Australia (+3.5% y/y) and Tasmania (+3.2% y/y) once again lead wage gains across the regions.

Small business payment times impacted by EOFY

Payment times improved in the June quarter, likely due to businesses settling their accounts ahead of the end of the financial year. Small businesses waited an average of 21.3 days to be paid, down from 22.5 days in the March quarter, and payments were late by an average of 5.8 days, down from 6.4 days in March. However, these gains are expected to reverse in the following months.

Theo Konstantas, Sales Director Australia, Xero, said: “The data shows that Australian small businesses continue to demonstrate resilience. We encourage small businesses to know their numbers and work closely with their advisors to find ways to improve productivity. With the stage three income tax cuts set to boost disposable income for millions of Australians this financial year, we hope consumers will use some of this money to support their favourite small business, driving sales performance in the coming months.”

You can find the latest Xero Small Business Insights Australia Update here. To find out more about how the Xero Small Business Index is constructed, see the methodology.

[1] In June, the payment time measures were impacted by the end of financial year, which caused both to fall significantly. This pattern is repeated each year and is expected to return to normal levels in subsequent months.

ENDS

Media Contact

Jess Brophy | Communications Director ANZ | +61 431 268 549 | jess.brophy@xero.com

About Xero

Xero is a global small business platform with 4.2 million subscribers. Xero’s smart tools help small businesses and their advisors to manage core accounting functions like tax and bank reconciliation, and complete other important small business tasks like payroll and payments. Xero’s extensive ecosystem of connected apps and connections to banks and other financial institutions provide a range of solutions from within Xero’s open platform to help small businesses run their business and manage their finances more efficiently.

Disclaimer

This media release includes and is in parts based on assumptions or estimates. 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 decision. The insights in this release were created from the data that was available as at the date it was extracted. Data used was anonymised and aggregated to ensure individual businesses can not be identified.